Bradford & Bingley (B&B) has said that more than a quarter of the shares offered under its £400m rights issue have been bought by shareholders.

The bank said that 27.8% of its new shares, which were on offer at 55p each, had been taken up by investors.

Other UK banks, including HBOS, Royal Bank of Scotland and Barclays, have sought to raise extra cash after being hit by the credit crunch.

Separately, B&B announced Richard Pym as its new chief executive.

Lacklustre performance

Despite B&B’s rights issue proving more successful than some recent rights issues by other banks, almost £300m of its new shares will be left with underwriters.

The underwriters – Citi and UBS – will now try to place the remaining shares by Friday.

The two investment banks are being supported by four major shareholders and six banks – HSBC, Lloyds TSB, HBOS, Barclays, Abbey and Royal Bank of Scotland. This could mean that some of the UK’s main High Street banks will end up owning a chunk of B&B.

The news comes as B&B announced it had appointed Richard Pym its new chief executive with immediate effect.

Mr Pym was a former group chief executive at Alliance & Leicester and retired in July 2007.

He is currently an independent non-executive director of asset management group Old Mutual and a non-executive chairman of car parts retailer Halfords.

Despite Mr Pym’s credentials, he is likely to face a tough ride at B&B, observers say.

“[Mr] Pym is a safe pair of hands, in our view, to try to shepherd B&B through the coming asset quality problems we feel it will suffer. However, we also feel he can do little to avert said problems,” said Collins Stewart analyst Alex Potter.

Troubled rights-issue

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.

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

Earlier this year, the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue of around 95%.

Barclays secured £4.5bn in new funding from a range of foreign investors, but only 19% of its new shares were taken up by existing investors.

Last month, HBOS said that only 8% of the new shares on offer were taken up in its £4bn rights issue.

In its statement, B&B added that there had been “no material change” in either current trading or the outlook for the company.

It is scheduled to release its six month results to 30 June on 29 August.

News reported by The BBC

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

BP says it is to appeal against the decision of a Russian labour court to bar the chief executive of its troubled joint venture TNK-BP from the country.

US-born Robert Dudley had left Russia last month when his work permit was not renewed, but has been continuing to work as CEO from outside the country.

Russian shareholders have been seeking to oust Mr Dudley from his post.

BP said it was “disappointed” by the decision and that Mr Dudley would stay in his post during the appeal process.

‘Full support’

“Robert Dudley remains CEO pending completion of an appeal process. He has BP’s full support,” the firm said.

“We believe this is clearly a further example of administrative activity orchestrated by the other shareholders in TNK-BP.”

The UK and Russian shareholders of TNK-BP, which is half owned by Russian billionaire group AAR, have disagreed over the firm’s management.

Foreign specialists

Mr Dudley has said “sustained harassment” had prompted him to leave Russia temporarily.

But Russian shareholders say Mr Dudley has not been running the company in the interests of all those involved.

They insist that removing him as chief executive of TNK-BP is their only goal, and reject the idea that they want to control the joint venture.

BP has already removed about 150 of its foreign specialists from the country.

News reported by The BBC

The Russian ambassador in London has dismissed the idea that there has been a government-backed plan to attack BP, in its joint venture TNK-BP.

TNK’s boss Robert Dudley has left Russia after visa difficulties.

Ambassador Yuri Fedotov told the BBC it wasn’t “harassment” but the result of commonly applied rules.

The British and Russian shareholders of TNK-BP, which is half owned by Russian billionaire group AAR, have disagreed over the firm’s management.

On Thursday Mr Dudley said “sustained harassment” had prompted him to leave Russia temporarily.

Shareholders

The comments by Mr Fedotov came after the British embassy in Moscow said the dispute was damaging economies of both Britain and Russia as well as harming the global energy market.

“The way shareholders have manipulated elements of the Russian state bureaucracy and the way this has been allowed to continue is very disappointing,” an embassy spokesman said on Friday.

“We will continue to stress to the Russian government the importance of a resolution between the shareholders in full accordance with the rule of law.”

In contrast, Russian shareholders say Mr Dudley has not been running the company in the interests of all those involved.

They say removing him as chief executive of TNK-BP is their only goal, but reject the idea that want to control the joint venture.

BP has already removed 150 of its foreign specialists from the country.

News reported by The BBC

Why are we asking this now?

It has emerged that Morgan Stanley, one of two huge investment banks that has been helping HBOS to raise £4bn from shareholders, was at the same time selling the company’s shares short – betting that the Halifax Bank of Scotland group would fall in value. Morgan Stanley has not broken the law, or breached any City rules, but its dealings have certainly raised eyebrows. And this is the latest in a series of controversies in recent months relating to short selling.

What is short selling?

It is a way of profiting from a fall in a company’s share price. Most stock market investors buy shares in the hope and expectation that their value will increase – “going long” in the jargon of the City – but it is also possible to make money when the opposite happens. Shorting means selling a share that you don’t own in order to buy it back once it has fallen in price, netting a profit in the process.

How can you sell something you don’t own?

In a conventional short sale, the investor – usually a hedge fund or large investment bank – takes the view that shares in a particular company are set for a fall. The investor then borrows the shares from someone who does own them – most often a large pension fund or insurance company – and sells them in the market. Once the shares have fallen in value, the investor buys them back at the lower price and returns them to the lender.

If all goes according to plan, the investor is paying less to buy back the shares than it received for selling them. There are some costs involved, notably that the lender charges a fee for loaning out its shares, but in an ideal world the shorter still makes a tidy profit.

There’s a variation on this theme, known as “naked short selling” – a form of shorting where the investor doesn’t even bother to borrow the shares it is betting against. This is possible because share deals are often not settled immediately. The seller promises to deliver the stock after a short delay – say three days. If a short seller buys the stock back before it has to make good on the original delivery, no shares need actually change hands.

So what’s all the controversy?

The biggest concern is that short selling has often been associated with market abuse. The clearest victim of such abuse was HBOS itself, earlier this year. Over the course of just an hour one day in March, its shares plunged when rumours swept the stock market that the bank had financial problems similar to those that caused the collapse of Northern Rock. The rumours were totally false and the share price recovered later in the day, but not before investors with short positions in HBOS shares had made a handsome gain. City regulators are still trying to discover who started the malicious gossip about HBOS, but there is widespread suspicion that the rumours were planted by a hedge fund keen to make a fast buck. Such behaviour is illegal, but also very difficult to investigate.

What about Morgan Stanley?

The ethics of Morgan Stanley’s shorting of HBOS is much less clear-cut. The investment bank knew that if HBOS’s fund-raising was not a success, it would be held to a promise to buy the bank’s shares at a higher price than their prevailing market value, booking a nasty loss. Selling the shares short was one way of making some of these losses back.

Morgan Stanley argues that its shorting of HBOS was sensible risk management, conducted by a separate department to the part of the bank handling the fund-raising. But HBOS must wonder why a bank to which it is paying considerable sums for work on its fund-raising has been simultaneously making money from a fall in its value. It’s also clear that by Friday, when Morgan Stanley began shorting HBOS shares in a major way, it knew that the fund-raising was going to be a serious flop.

Any other problems with this practice?

Critics also have little time for pension funds and insurance companies that facilitate the process by lending out their shares. These large investors buy shares on behalf of their clients – you and me – and presumably hope they will rise in value. So it seems bizarre that they’re prepared to lend stock to people who want to make money from falling share prices.

The pension funds’ argument is that they buy shares with a long-term view. The sort of short-term ups and downs caused by short sellers does not affect this, and besides, they say, they make money for clients from stock lending. Still, in the worst cases, short selling can totally destabilise a company, damaging its prospects for years to come.

What sort of money is involved?

The hedge funds and investment banks that dabble in short selling do so with astronomical amounts of money. Analysis conducted by The Independent shows that hedge funds have made more than £1bn betting on a fall in HBOS’s share price in the past two and a half months. One single hedge fund is thought to have made £1bn betting on the collapse of Northern Rock last year.

Remember that stock-market investment is a zero-sum game. For every pound of profit made by a short seller, there’s an equal loss for shareholders who have gone long.

So what can be done?

Regulators around the world have already attempted to police short selling more closely. The Securities and Exchange Commission in the US, for example, has prosecuted traders for spreading false rumours about companies they’ve sold short. The Financial Services Authority in the UK still hopes to bring similar charges against the HBOS raiders.

New rules have also been introduced. Naked short selling is illegal in the US in most circumstances. In the UK, the FSA announced earlier this year that anyone shorting the shares of a company holding a rights issue to raise new funds would have to disclose their trading positions once they exceeded quite low thresholds. It has promised additional regulation if these rules do not prove sufficient to prevent market abuse.

Pressure has also been brought to bear on stock lenders. Many pension funds now operate on the basis that they will not loan out any of their shares. But the fact remains that short selling, when done within in the law, is a legitimate investment practice and an outright ban would be a draconian intervention. Buying shares in a company is, in essence, a simple gamble that the price of the stock will rise. Why should investors not also be allowed to bet on a fall in share prices?

Is short selling just another example of City excess?

Yes…

* Making money as companies lose their value is simply profiting from other people’s misery

* Short selling is very often associated with murky – and even illegal – market practices

* Hedge funds, often owned by a small group of traders, make massive profits from driving down share prices

No…

* Betting on a share-price fall is no less legitimate an investment than gambling that the market will rise

* City regulators already police the financial markets to curb illegal practices and catch those who flout the rules

* Some instances of short selling are just a way of reducing the risk of very large “long” investments

News reported by The Independent

Vodafone has said it will buy £1bn of its own shares after a disappointing trading update prompted a sharp fall in its stock price on Tuesday.

Its shares fell 14% to 129 pence on Tuesday after it warned revenue would be hit by an economic downturn. They rose 2.5% to 132.2 on Wednesday’s news.

The stock buyback plan is subject to approval from shareholders.

Vodafone said the buyback “reflects the board’s belief that the share price significantly undervalues” the firm.

On Tuesday, Vodafone’s chief executive Arun Sarin, due to step down later this month, said the company faced a more “challenging operating environment”.

Vodafone said that revenue in the year to 31 March 2009 would be at the bottom of the predicted £39.8bn to £40.7bn range.

However, Vodafone added that cost cutting would mean that its profits for the current financial year were still set to meet its original forecasts.

The company still expects to make operating profit of £11bn to £11.5bn, with emerging markets forecast to perform strongly.

However, the firm is experiencing problems in Europe, particularly in Spain, where its business faces falling revenue and slowing customer growth.

Mr Sarin will be replaced by his deputy Vittorio Colao.

News reported by The BBC

Supporters of HBOS’s £4bn rights issue were hoping last night that yesterday’s surge in banking stocks could boost last-minute demand for the bank’s capital raising.

Shares of Britain’s biggest mortgage-lender rose 5.4 per cent to 268.25p but were still adrift of the 275p offer price for the rights, meaning that investors should be able to buy the stock cheaper in the market. Shareholders have until 11am today to take up their rights to the new shares.

But with the shares trading closer to the rights price, big investors that need to buy large chunks of HBOS stock to maintain their holdings might choose to buy the shares.

Observers said the closing of the gap with the offer price could give long-term investors who want to support the capital raising enough justification for taking up the rights.

Even if there is a late surge, Morgan Stanley and Dresdner Kleinwort, the underwriters of HBOS’s cash call, will be left with large holdings of the bank’s shares.

A “substantial” proportion of the share offer, designed to boost the bank’s capital strength as the economy slows, is said to be sub-underwritten by long-term existing investors that are likely to hold on to the stock. The banks’ underwriting guarantees that HBOS will get the money.

The FTSE 350 banks index rose 6.5 per cent after strong banking results in the US helped to lift the gloom that had driven shares of UK lenders to a new 10-year low during trading on Thursday. Bradford & Bingley’s £400m rights issue was approved by shareholders yesterday, with 93 per cent of votes cast in favour of the share sale and only 3 per cent voting against. The buy-to-let lender’s shares rose 7.5 per cent to close 1p below the 55p rights price.

Barclays has shunned the rights issue route by lining up “anchor” investors led by the Qatar Investment Authority to buy £4.5bn of new shares if existing shareholders fail to purchase them at 282p.

Barclays shares surged 8.9 per cent to 290.5p but the rise was too late for yesterday’s 11am deadline for taking up the shares.

Royal Bank of Scotland raised £12bn in its rights issue, which closed early last month when the gloom about the financial sector had lifted temporarily. The bank’s shares jumped 8.9 per cent to 179.5p yesterday but were 10 per cent the 200p rights price.

The fraught progress of B&B and HBOS’s rights issues will deter banks from using that route to raise capital in the near future. A number of bank analysts believe that UK lenders may need to raise fresh funds as the economic slowdown boosts bad debts.

UBS analysts said yesterday that Lloyds TSB, which has not joined the search for new funds, could find its capital under pressure. The analysts predicted a 30 per cent cut in Lloyds’ dividend next year because the bank will want to avoid a rights issue and has little in the way of non-core assets to sell.

Lloyds’ shares shrugged off the analysts’ concerns, rising 5.8 per cent.

News reported by The Independent

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

Internet giant Yahoo has defended its decision not to sell part of the company to Microsoft, saying “it made no sense financially or strategically”.

Microsoft proposed buying its online search business after withdrawing an offer to buy Yahoo outright.

Yahoo is facing an attempt by billionaire investor Carl Icahn to unseat the board after it failed to do a deal with Microsoft.

It has called for shareholders’ support at its annual meeting on 1 August.

“Microsoft’s ‘hybrid’ proposal to acquire only Yahoo’s valuable search business makes no sense for the company either financially or strategically,” Yahoo said in a presentation to shareholders released ahead of the meeting.

Instead of doing a deal with Microsoft, Yahoo signed an agreement with Google to use its online advertising technology.

Yahoo defended that decision, saying it expects that deal to generate $250m-$450m (£125-£225m) from that deal within the first 12 months.

It criticised Mr Icahn’s “ill-defined plan” for Yahoo, which it said focused on selling the firm to Microsoft “even though Microsoft has repeatedly confirmed that it is not interested in a full acquisition”.

Shareholder Mr Icahn is trying to oust Yahoo’s board, including the Internet firm’s co-founder and chief executive Jerry Yang.

Yahoo shares fell 1.7% to $20.97 (£10.54).

News reported by BBC