TPG checks into B&B as woes intensify

Does a new private equity deal signal light at the end of the tunnel for the embattled Bradford & Bingley?

Last Updated: 31 Aug 2010

It’s been another morning of grim news from Bradford & Bingley. The struggling UK bank, which has seen its share price tank in the last few months, suffered again today after revealing that it had made a pre-tax loss of £8m in the first four months of the year. It’s now expecting full-year profits to be way below the City’s expectations of £250m – as a result of which it’s had to restructure its planned rights issue so it can raise more money. Oh, and CEO Steven Crawshaw is stepping down with immediate effect, citing a ‘serious cardiovascular condition’. No wonder its share price plunged another 20% this morning…

As part of this restructured rights issue, B&B is getting a big new investor: US private equity behemoth TPG, the firm formerly known as Texas Pacific Group (before it decided that was a bit too parochial-sounding), which is taking a 23% stake in exchange for a cash injection of £179m. With the rest of its shareholders asked to cough up a further £258m, B&B will see its piggy bank bolstered to the tune of more than £400m – much more than the £300m it initially planned to raise. What’s more, the new shares are being offered at 55p share, well below the planned price of 82p. Seeing as its shares are now worth less than that on the open market, this isn’t exactly surprising.

B&B’s woes stem largely from the problems in the buy-to-let housing market, which has been slowing down rapidly in the wake of the credit crunch. Apparently the number of BTL mortgage holders struggling to keep up with repayments has jumped by more than 30% this year – and to make matters worse, the problems in the money markets have also made it much more difficult for B&B to raise funds, slashing its margins. Its focus on the BTL market had made it a stock market darling – now it’s a millstone around its neck…

With its share price in freefall (having dropped by two-thirds in the last six months), it looks like a pretty grim outlook for B&B and its chairman Rod Kent, who’s taking over the executive reins for the time being after Crawshaw’s departure. But although Kent admitted it was a ‘disappointing trading update’ (that’s the understatement of the year), he at least sounded chirpy about TPG’s investment. And he’s got a point: the US buyout firm clearly thinks B&B shares look cheap – and on past form, it doesn’t get this wrong very often. So the only consolation of today’s news for shareholders is that this may be just about as bad as it gets...

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