Big six to 'rescue B&B'

09-07-2008

Big six to 'rescue B&B'
The big six banks have agreed to rescue Bradford & Bingley as the bank's shares took a further plunge, according to a report.

The Daily Mail claims HBOS, Abbey, Barclays, Lloyds TSB, Royal Bank of Scotland and HSBC, stepped in last night under pressure from the Financial Services Regulator (FSA).

The financial watchdog is keen to avoid another Northern Rock crisis as the bank's shares declined to a record low of 34p yesterday.

Bradford & Bingley had hoped to raise money through a rights issue, priced at 55p, but the current dip means it is unlikely to be enthusiastically taken up by shareholders.

If shareholders do not buy the shares at the rights issue price, its underwriters will be left footing the bill.

The six banks are thought to have promised to buy the shares which Bradford & Bingley's main underwriters, US investment banks UBS and Citigroup, do not buy.

Bradford & Bingley, which is Britain's biggest buy-to-let lender and is therefore dependent on the fortunes of the property market, has lurched from crisis to crisis in the last few months.

After its chief executive resigned due to ill health, the bank announced a profit warning that sent shares plunging.

Next, the bank reported a rescue deal had been agreed with TPG, which had agreed to buy 23 per cent of the bank, as well as a rights issue.

But as its share value continued to decline, Bradford & Bingley responded by re-pricing its rights offer.

Finally, a rescue deal from US investor TPG collapsed last week after rating agency Moody's downgraded Bradford & Bingley, leaving the bank without a major investor to boost its capital reserves.

Despite the bank's problems, there are no queues of savers waiting to withdraw their cash, unlike in the days before Northern Rock was taken public.

Northern Rock was particularly vulnerable because it relied on borrowing money from the wholesale markets to fund its operations rather than using customers' deposits.

Savers can also relax knowing that since Northern Rock, the government has introduced new rules protecting the first £35,000 of deposits.

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