Price targets as low as 25p were being set by brokers yesterday for Bradford & Bingley after underwriters were left holding more than 72% of the shares in its £400m rights issue.
Price targets as low as 25p were being set by brokers yesterday for Bradford & Bingley after underwriters were left holding more than 72% of the shares in its £400m rights issue.
As expected, the struggling buy-to-let specialist has already installed Richard Pym, the former head of its rival Alliance & Leicester, as chief executive in an attempt to steady City nerves over the twice-revived emergency rights issue at 55p a share. Pym, who was 15 years at Alliance & Leicester and fronted the unsuccessful bid by JC Flowers for Northern Rock, replaces Steven Crawshaw, who quit in June for health reasons.
The former mutual's cash- call was shunned by most of its 850,000 small investors dating back to demutualisation in 2000, holding around a third of the shares, but four major institutional shareholders, including Standard Life Investments and HBOS-owned Insight Investment Management, agreed to a rescue by taking up their combined 13% stake.
The embattled bank said investors had taken up 27.8% of the offer - historically weak but way above the anaemic 8% achieved last month by HBOS.
Underwriters Citi and UBS now have until Friday to place the "rump" of the cut-price, twice-restructured offering.
Bradford & Bingley traded close to the rights price of 55p in the run-up to the call, and just above it as subscriptions closed on Friday. Yesterday it was down 0.75p at 54p.
The four major share- holders agreed to support the issue after the bank's funding deal with US private equity firm Texas Pacific was torpedoed by a rating downgrade, forcing backstage discussions at the Bank of England and Financial Services Authority. That helped ensure that the UK's six major banks also weighed in to support the third and final attempt at raising cash, promising to take up to 3% each of the shares as they are offloaded into the market this week.
A source close to one of the underwriting banks commented: "We're all very big players - it's not a big concern to us. The rights issue doesn't settle until the end of the week, so we have five days to place the rump. We'll see how much demand there is and then determine what we'll do."
A banking source added: "It's good for people con-sidering the placement to know who is going to run the company going forward."
Pym is widely seen as a safe pair of hands who will focus on costs and on managing the bank's riskier specialist loans, though limited refinancing options could restrict his room for manoeuvre.
Alex Potter, analyst at Collins Stewart, said Bradford & Bingley's limited branch network and tough market segment made it an unlikely bid target. "We feel it does not make a sensible beachhead for a foreign acquirer, nor offers much interest to the few UK names that could consider a deal."
He noted that treasury losses almost wiped out first-half earnings at Alliance & Leicester, and adds that a "repeat performance'" at Bradford & Bingley is pos-sible when it reports its interim results next week.
NCB Stockbrokers analyst Irfan Younus said that while underwriters try to offload the shares, it will create an artificial ceiling for the stock, but after that they are liable to fall - he has set a 25p price target.
He says Bradford & Bingley's dependence on wholesale funding means it will shrink its mortgage book, diluting earnings, while rising bad debts will hit profits as economic conditions worsen.
Meanwhile, the bank said there has been "no material change" in trading and outlook since its last statement on June 2, when it said credit impairments and arrears were on the rise, and would continue to rise throughout the year.
