B&B taps market – will A&L follow?

published 19 May 2008

Yet another U-turn in the financial sector. Just a month after denying rights issue rumours, Yorkshire lender Bradford & Bingley (B&B), which has been hit by the frozen wholesale markets and some writedowns on complex derivatives, is now rattling the tin to shareholders for an extra £300m with a heavily discounted share offer.

B&B is keen to present the reversal as an opportunistic boost to its (still relatively strong) capital base, with CEO Steven Crawshaw claiming current market stability affords "the right moment to launch a rights issue, not in the middle of a maelstrom". The move was "badly handled but sensible", agreed MF Global Securities' Simon Maughan, grudgingly.

But what does Bradford & Bingley's cash call say about buy-to-let prospects? Will the raised money really just "mitigate the impact of the previously announced reductions" in the value of certain investments, as Crawshaw puts it? Firstrung operations director Paul Holmes forecasts "an absolute glut of repossessions from those who entered the market place in the last four years" as mortgage costs have risen. Shareholders who have suffered a two-thirds decline in their investment's value this year, to the lowest level since the 2000 initial public offering, could be set for further misery.

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Where does this all leave Alliance & Leicester (A&L), which has just announced a further £192m of subprime-related writedowns? JP Morgan analyst Carla Antunes de Silva asserted last month that A&L's unsustainable' business model would prevent the lender funding itself from the wholesale markets. Despite extending its liquidity reserves, according to George Hay on Breakingviews, A&L "still needs to strengthen its balance sheet and should raise equity soon". Listen out for denials

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