B&B Shares Hit Record Low as Concerns Persist
Shares in Britain's troubled Bradford & Bingley fell 16 percent on Monday to hit a record low of 42 pence, below its rights issue price of 55p, as concerns over the mortgage bank's future persist.
B&B was forced to increase a planned rights issue to 400 million pounds ($789 million) on Friday after U.S. investor TPG Capital pulled out of buying a stake after credit rating agency Moody's downgraded the bank.
B&B said the cash call was supported by its top investors and was fully underwritten, but its shares have tumbled.
"While it (will get) the funding from major shareholders, its credibility has been shattered," one trader said on Monday.
"At the end of the day, it's going to struggle." B&B shares have also been hit by news on Friday that entrepreneur Clive Cowdery, who tried to gatecrash the TPG deal with his own plan to inject 400 million pounds, is unlikely to return after walking away late last month.
Analysts at Fox-Pitt, Kelton, who cut their target price for the stock to 43p on Monday, said Friday's developments were "unequivocal negatives" that would hit the bank's franchise, earnings and investor confidence.
"Our price target assumes that the rights issue does actually complete at the 55p subscription price and that the UK's Financial Services Authority and the Bank of England ensure the bank does not fail," FPK analysts said.
"However, we cannot rule out the possibility of an effective failure, with shareholders receiving little or nothing for their shares," they added.
The bleak outlook for the UK mortgage market has also renewed concerns that Alliance & Leicester will have to raise capital or cut its dividend as its earnings are expected to fall.
Shares in the bank fell as much as 6 percent on Monday.
"With very difficult conditions for a rights issue and probably private equity now unreliable sources of capital, cutting the interim dividend seems the only option available to A&L management," said Pali International analyst Bruce Packard.
Royal Bank of Scotland was down 2.5 percent, while lender Paragon, named as a possible target for Cowdery's restructuring vehicle, fell 5.7 percent.