TPG buys £179m stake in B&B

Bradford & Bingley, the UK’s biggest buy-to-let lender, confirmed on Monday that private equity firm Texas Pacific Group will invest £179m in buying a 23 per cent stake.

The mortgage bank, which has a market capitalisation of £545m, was approached by TPG after launching its controversial £300m rights issue aimed at repairing its battered balance sheet.

B&B will scale back its existing rights issue to £258m at a price of 55p a share.

The lender also issued a profit warning and said that Steven Crawshaw, its chief executive, is to step down due to “a serious cardiovascular condition”. It is thought he has been suffering from angina attacks in recent weeks and the condition has only been recently diagnosed.  

The shake-up at B&B comes at the start of a critical week for UK banks, which have seen their share prices pummelled in recent days amid fears about a downturn in the UK economy and falling house prices.    

Shares in B&B were suspended on Monday after falling as much as 16 per cent in opening exchanges. The shares had closed on Friday at 88¼p – only 6¼p above the offer price for its previously announced rights issue. There had been fears that if B&B’s shares dipped below the rights issue price, then its underwriters, UBS and Citigroup, and the institutions which have sub-underwritten, could be left holding a large rump of unsold stock.

B&B was approached by TPG recently although it held talks last year with two Middle eastern sovereign wealth funds which were interested in taking a stake, although these talks came to nothing.

B&B is capitalised at £545m after falling from its peak of £3.2bn in March 2006. However, its trading statement pointed to rising levels of arrears in its mortgage book and as house prices fall, mortgage lenders like B&B have to hold more capital against the same mortgage assets under Basel II banking rules.

B&B had been expected to report profits of £250m in 2008 including exceptionals – although analysts are now likely to downgrade their forecasts.

TPG is likely to hold its investment in B&B for between three and five years. As well as a $2bn (£1bn) investment in Washington Mutual, TPG has invested in American Savings and Korea First Bank.

It is thought that by investing in B&B, it is calling the bottom of the market for UK mortgage lenders.

The private equity group is also likely to take board seats at B&B. B&B has been seen as a potential takeover target but the TPG investment could help them buy time. 

Royal Bank of Scotland, whose £12bn rights issue closes on Friday, faces the same potential risk of unsold stock although its shares closed at 228.5p last week, giving some headroom above its rights issue price of 200p. RBS will also raise £1bn by selling its 50 per cent stake in Tesco Personal Finance to the supermarket group.