A £400m rights issue at Bradford & Bingley (B&B) has closed, with analysts expecting that some of the deal’s underwriters will end up with shares.

Shares in B&B were trading at 55.25p when the deadline for the cash call finished on Friday – just above the 55p offer price for existing investors.

The take-up is forecast to be modest – though higher than the 8% seen last month in a rights issue by HBOS.

B&B, a buy-to-let loans specialist, has been hit hard by the credit crunch.

It is not expected to reveal how many shareholders took up the offer to buy extra shares until Monday.

The rights issue was underwritten by banks including Citi and UBS, along with HSBC, Lloyds TSB, HBOS, Barclays, Abbey and the Royal Bank of Scotland.

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 price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Rival cash calls

B&B’s rights issue has been restructured twice. The bank first announced an attempt to sell shares at 82p in May. Then, as trading took a turn for the worse, B&B announced it had decided to sell a 23% stake in the firm to Texas Pacific, but the private equity firm later backed out.

Earlier this year the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue.

Meanwhile Barclays has secured £4.5bn in new funding from a range of foreign investors.

Barclays announced last month that 19% of its new shares had been taken up by existing investors.

News reported by The BBC

LONDON (Reuters) – Britain’s battered smaller banks and other lenders are ripe for merging to create a bigger, stronger bank, but fragile markets and a grim economic outlook are likely to delay consolidation until some stability returns.

Bradford & Bingley (BB.L: Quote, Profile, Research), the UK’s largest lender to landlords, is at the sharp end of concerns about smaller banks as it nears a 400 million pound cash call set to be backed by other banks but snubbed by its army of small shareholders as concerns over bad debts deepen.

An acquisition of B&B would solve a headache for regulators and the industry, removing the threat of a repeat of last year’s embarrassing collapse of mortgage lender Northern Rock.

Analysts and bankers say rivals Alliance & Leicester (ALLL.L: Quote, Profile, Research) and other lenders like Paragon (PARA.L: Quote, Profile, Research), Bristol & West (BKIR.I: Quote, Profile, Research), Cattles CTT.L and smaller building societies would all benefit from being pulled together. There are also multi billion-pound closed books of mortgages held by top investment banks that could be included.

Potential buyers or consolidators are watching with interest as valuations plummet, bankers and sources familiar with the matter, but they are not confident enough to pounce yet.

“It’s very difficult to make deals happen because share prices are just so volatile. You could start negotiations and two days later the share price is 20 percent lower,” said James Eden, analyst at Exane BNP Paribas. “And all the banks think they are worth more than the current price.”

The logic for bringing together several of the smaller banks or other lenders would be to cut costs, strengthen their capital base to withstand shocks, improve credit ratings, and reduce funding costs at a time of tough wholesale markets.

The most public move so far has come from entrepreneur Clive Cowdery, who wanted to inject 400 million pounds into B&B and use it to spearhead consolidation of smaller lenders.

News reported by Reuters

Top City practitioners and regulators have been summoned to the Treasury tomorrow to discuss reforming the rights issue process, in the wake of the chaos surrounding the recent cash calls undertaken by the UK’s troubled banks.

The Treasury is determined to push for changes to the process, which became more controversial following the crisis cash calls launched by HBOS, RBS and Bradford & Bingley to shore up their balance sheets. If agreement can be reached with practitioners over the next few weeks, the Treasury hopes to put recommendations in place by the end of the summer.

One source said: “The Treasury is genuinely shocked by the disastrous way the recent rights issues by the banks were undertaken. It’s bad for the companies in trouble but also bad for London as a financial centre. Officials understand that the system of raising money needs to be speeded up and improved.”

Tom Scholar, managing director of the Treasury’s financial services unit, and Kitty Ussher, Economic Secretary at No 11, are both involved in the planned reforms, which are likely to include speeding up the process and reducing requirements such as issuing a full prospectus.

This is the first meeting of the rights-issue working party, set up after the Treasury announced its review a few weeks ago. Bankers and investors will be at the meeting along with representatives from the Financial Services Authority and Bank of England. Any reforms will require new legislation.

One banker who will be at the meeting said: “This debate has been going on for decades. But for the first time there is a sense of urgency from all parties. It’s no longer about paper-pushing. Everyone wants changes.”

The UK is the only country to give investors pre-emption rights over shares, giving them first refusal on new shares in proportion to their existing holdings.

But the system has come under attack from big US investment banks such as Morgan Stanley and Goldman Sachs. They have argued that the UK should adopt their placement process, which is quicker; however, even they now accept the principle of pre-emption and are pushing only for the process to be made more efficient and faster.

“There is now a consensus. This is a great opportunity for reform,” said another source.

The working party will consider removing the need for a full prospectus, tightening the timetable so that the period needed for an extraordinary general meeting can be shorter, and introducing a twin-track system for institutions and retail investors.

Paul Myners, a non-executive director of the Bank of England, who led a study of pre-emption rights three years ago, said that the Treasury only had to pull out his report to see what changes needed to be made. Mr Myners recommended a trading update be issued rather than a prospectus, and that EGM notice periods be cut to seven days. He said that nothing in his proposals threatened the interests of companies or their shareholders.

News reported by The Independent

The boss of Bradford & Bingley has quit “due to a serious cardiovascular condition”, the firm has announced.

Chief executive Stephen Crawshaw is leaving the UK mortgage lender with immediate effect, and will be replaced by chairman Rod Kent in the short-term.

Mr Crawshaw’s departure comes a day before a trading update and reports say the firm will issue a profit warning.

The firm has been hit hard by the credit crisis and is trying to raise £300m to boost its balance sheet.

In May, the firm said it would launch a rights issue in an attempt to help offset some of its weakening investment, having only a month earlier denied it would be seeking to raise funds.

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 price
– Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

The Sunday Telegraph said Bradford & Bingley was expected to say profits would “fall well below analysts’ forecasts” of between £160m and £200m pre-tax.

And the Sunday Times reported the profit warning “is expected to be contained within the bank’s rights-issue document” which is to be sent out this week.

US housing slowdown

B&B saw its profits drop by almost half after writing down assets, including those linked to US mortgages.

Pre-tax profit fell to £126m in 2007 from £246.7m the year before.

As the UK’s biggest buy-to-let lender, B&B has 20% of that market which has suffered following recent market turmoil.

Banks worldwide have seen huge losses linked to problems in the struggling US housing market.

Problems started when borrowers in the US, with no or limited credit history, started to default in large numbers once interest rates became too high.

Many of those loans to so called sub-prime borrowers had been grouped together, repackaged and sold on to banks as an investment with high returns worldwide.

B&B, like other banks, has been asking for bigger deposits and raising its interest charges for new products.

The firm recently warned of a rise in mortgage arrears as borrowers found it harder to repay loans.

Competitors have also sought rights issues in an attempt to raise funds.

Royal Bank of Scotland is seeking to raise £12bn while HBOS wants to raise £4bn.

News reported by BBC