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Investor to shore up B&B finances Investor to shore up B&B finances
(20 minutes later)
One of the world's largest private equity houses is to take a stake of about 20% in Bradford & Bingley.One of the world's largest private equity houses is to take a stake of about 20% in Bradford & Bingley.
The move by US investor Texas Pacific Group is to shore up the finances of the UK buy-to-let mortgage lender.The move by US investor Texas Pacific Group is to shore up the finances of the UK buy-to-let mortgage lender.
About £150m of funds would be injected into B&B, with existing stakeholders asked to provide £250m of new capital.About £150m of funds would be injected into B&B, with existing stakeholders asked to provide £250m of new capital.
The news came as B&B's chief executive stepped down for health reasons, on the eve of a warning that its profits will be much lower than the City expects.The news came as B&B's chief executive stepped down for health reasons, on the eve of a warning that its profits will be much lower than the City expects.
Stephen Crawshaw had quit "due to a serious cardiovascular condition", the firm said.Stephen Crawshaw had quit "due to a serious cardiovascular condition", the firm said.
Lower profitsLower profits
Bradford & Bingley is the UK's eighth-largest bank and the biggest in the buy-to-let market.Bradford & Bingley is the UK's eighth-largest bank and the biggest in the buy-to-let market.
The former building society is worth about £545m and has more than three million customers.The former building society is worth about £545m and has more than three million customers.
Bradford & Bingley has a trading problem, but it doesn't have the kind of problems Northern Rock had Robert PestonBBC Business Editor Peston's PicksBradford & Bingley has a trading problem, but it doesn't have the kind of problems Northern Rock had Robert PestonBBC Business Editor Peston's Picks
But the firm has been hit hard by the credit crisis, and in May launched a rights issue asking current shareholders to inject £300m.But the firm has been hit hard by the credit crisis, and in May launched a rights issue asking current shareholders to inject £300m.
The new plan represents a scaling back of that demand, but because of TPG's contribution, B&B would end up raising more than under the previous plan - about £400m in total.The new plan represents a scaling back of that demand, but because of TPG's contribution, B&B would end up raising more than under the previous plan - about £400m in total.
The price of the new shares for TPG and for B&B's existing shareholders is expected to be a bit above 50p per share, well below the original rights price of 82p per share.The price of the new shares for TPG and for B&B's existing shareholders is expected to be a bit above 50p per share, well below the original rights price of 82p per share.
BBC Business Editor Robert Peston said: "The reason it needs all this money is because its profits are going to be lower this year than the City had expected.BBC Business Editor Robert Peston said: "The reason it needs all this money is because its profits are going to be lower this year than the City had expected.
"The City was expecting about £250m of profits this year. Unfortunately because of the downturn in the housing market, Bradford & Bingley is probably only going to make about £150m."The City was expecting about £250m of profits this year. Unfortunately because of the downturn in the housing market, Bradford & Bingley is probably only going to make about £150m.
"That's a big drop - but nonetheless note, it is still likely to be in profit.""That's a big drop - but nonetheless note, it is still likely to be in profit."
One problem for Bradford & Bingley is that the housing market downturn has knocked the profits it makes from buy-to-let mortgages.One problem for Bradford & Bingley is that the housing market downturn has knocked the profits it makes from buy-to-let mortgages.
WHAT IS A RIGHTS ISSUE? Companies issue extra shares to raise money They are offered to existing shareholders, usually at a discount to the current share priceShares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones Check Bradford & Bingley sharesCheck other banking sharesWHAT IS A RIGHTS ISSUE? Companies issue extra shares to raise money They are offered to existing shareholders, usually at a discount to the current share priceShares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones Check Bradford & Bingley sharesCheck other banking shares
The buy-to-let market in the UK is worth about 120bn, with B&B having about a fifth of that.The buy-to-let market in the UK is worth about 120bn, with B&B having about a fifth of that.
The lenders' profits have been hit by a rise in the number of its borrowers who are experiencing difficulties making repayments on mortgages.The lenders' profits have been hit by a rise in the number of its borrowers who are experiencing difficulties making repayments on mortgages.
A further squeeze on profits has come from a narrowing in the gap between the interest rate it pays for funds and the rate it receives from borrowers.A further squeeze on profits has come from a narrowing in the gap between the interest rate it pays for funds and the rate it receives from borrowers.
Its share price has fallen by more than two-thirds in just the last six months - and fell 40% in the last month alone.Its share price has fallen by more than two-thirds in just the last six months - and fell 40% in the last month alone.
But bankers and regulators say B&B's troubles are not comparable in gravity or complexity to those of Northern Rock.But bankers and regulators say B&B's troubles are not comparable in gravity or complexity to those of Northern Rock.
Robert Peston says "people will draw parallels with Northern Rock, but I think those are the wrong parallels".Robert Peston says "people will draw parallels with Northern Rock, but I think those are the wrong parallels".
He said he had spoken to regulators who said B&B had a trading problem, "but it doesn't have the kind of problems Northern Rock had, namely it doesn't have a problem raising vital finances to keep going."He said he had spoken to regulators who said B&B had a trading problem, "but it doesn't have the kind of problems Northern Rock had, namely it doesn't have a problem raising vital finances to keep going."
Also, he said, TPG had a fearsome track record as an investor.Also, he said, TPG had a fearsome track record as an investor.
"And the news that it is taking a substantial stake... may reassure the stock market that the worst could be behind B&B.""And the news that it is taking a substantial stake... may reassure the stock market that the worst could be behind B&B."