Tepid response to B&B cash call

Bradford & Bingley's rights issue failed to convince shareholders

Bradford & Bingley (B&B) has said that just over 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.

This means the banks underwriting the issue now face trying to sell nearly three-quarters of the new shares.

B&B also said that Richard Pym, the former head of Alliance & Leicester, would be its new chief executive.

Mr Pym 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

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

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

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 B&B share price

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.

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 of about 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 the end of June on 29 August.

B&B shares ended trading down 1.4% at 54p.

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