Bradford and Bingley rescued by banks
Texas Pacific Group (TPG) has walked out of a deal to inject cash into Bradford & Bingley. The struggling bank now has to fall back on investors in an emergency cash injection.
TPG decided to pull out of the deal which was to buy 23% of Bradford & Bingley for £179m after learning that Moody’s, who are a ratings agency was going to downgrade B&B for the second time in five weeks.
In the terms of the contract TPG was allowed to drop out of the deal if B&B’s credit rating fell by two notches.
However this may not be the end for Bradford & Bingley as they are now hoping to receive a capital injection of about £400m from four large bank investors - Standard Life, Legal & General, Prudential and Insight, part of HBOS.
Over recent days, it has become obvious to B&B and those close to the bank that a downgrade by Moody’s was inevitable as they had already cut B&B rating on June 3.
As it became clearer Thursday afternoon that Moody’s would be downgrading B&B again, the City regulator, the Financial Services Authority, asked TPG for a decision on how they were going to react to the news.
TPG then held an emergency meeting for its investment committee and there with the firm’s head, David Bonderman, they decided that the investment was too expensive.
The FSA wanted a definite answer from TPG because they wanted to be able to present a stable situation to the stock market.
Close to midnight on Thursday the bank issued a statement saying “The Board has been informed by Moody’s of its decision to downgrade inter alia the Group’s senior unsecured and long-term debt ratings from A3 to Baa1 and to maintain the short-term rating at P2. In light of this downgrade, TPG has informed the group that it intends to enforce its right to terminate the Subscription Agreement entered into on 2 June 2008 with respect to its £179m investment.”
B&B’s chairman Rod Kent is expected to resign as B&B’s shareholders have been angry with the way the bank has handled finding new capital.
The four investors will put their cash in at 55p a share.
Mr Kent said “Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK.”
Visit www.bradfordandbingley.co.uk for more information on the bank.