Thought the worst was over for the credit crunch? Think again…

The aftershocks of Bradford and Bingley's botched rights issue will shake the rest of the UK banking sector, the economy and the City's reputation, says Simon Nixon.

This has been a particularly grim week for the City. The total shambles over Bradford & Bingley's rights issue has ramifications far beyond one small indeed now very small mortgage lender. It has implications for the rest of the UK bank sector, the housing market, the economy and the reputation of the City itself. For anyone lulled into thinking the credit crunch was nearly over after a fairly uneventful May, this mess will have come as a nasty shock.

The buy-to-let specialist lender was all set to raise £300m from its shareholders in a deal that was fully underwritten by UBS and Citigroup, two of the biggest names in global finance. Yet, in the course of an extraordinary weekend, it emerged that trading at B&B had deteriorated sharply in April and that the underwriters were trying to wriggle out of their commitment to buy the new shares if existing investors refused to take up their rights. Then, late on Sunday night, B&B said that TPG, a Texan buyout group, would buy a 23% stake for £150m and that the rights issue would be scaled back to £250m, with the price dropped from 82p to 55p, underwritten by the same two banks.

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Simon Nixon

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.