大象传媒

Private equity shores up B&B

• Robert Peston
• 1 Jun 08, 09:59 PM

One of the world's largest private equity houses, , is to take a stake of around 20% in , to shore up the finances of the leading buy-to-let mortgage lender.

Under a radical reconstruction of the bank's existing plans to raise capital through a rights issue of new shares, TPG would inject around 拢150m of new funds into B&B.

B&B's existing shareholders would be asked to provide a further 拢250m of new capital.

That represents a scaling back of the right issue from the 拢300m investors are currently being asked to inject. But B&B would end up raising more than it had hitherto planned to do, around 拢400m in total, thanks to the contribution of TPG.

The price of the new shares for TPG and for B&B's existing shareholders is expected to be a bit above 50p per share, well below the original rights price of 82p per share.

B&B has had to reconstruct and recalibrate its rights issue of new shares because it has come to the humiliating conclusion that its pre-tax profits this year will be significantly less than the City had been expecting.

It will tomorrow announce that its profits in 2008 will be "materially less" than analysts' forecasts of about 拢250m.

B&B will not put out a formal new profit forecast, but analysts are likely to revise their forecasts down to around 拢150m.

However TPG has a fearsome track record as an investor. And the news that it is taking a substantial stake in B&B may reassure the stock market that the worst could be behind B&B.

The lenders' profits have been hit by a rise in the number of its borrowers who are experiencing difficulties making repayments on mortgages.

A further squeeze on profits has come from a narrowing in the gap between the interest rate it pays for funds and the rate it receives from borrowers.

B&B has had a torrid time since the onset of the credit crunch last autumn, and its share price has fallen by more than two thirds in just the last six months.

It has been monitored closely by the , the City watchdog, the and the for months, ever since Northern Rock asked for an emergency loan from the Bank of England last September.

However, according to bankers and regulators, B&B's troubles are not comparable in gravity or complexity to those of Northern Rock.

The Financial Services Authority has in the past couple of days been "all over B&B like a rash" to assure itself that the bank's depositors have nothing to fear, according to a banker.

A regulator also told me that, unlike Northern Rock last September, B&B's is not suffering from a shortage of liquid funds that would imperil its future.

He added that its balance sheet was not particularly weak, even without the injection of new capital.

B&B's problem is that the housing market downturn has knocked the profits it makes from providing buy-to-let mortgages. "It has a trading problem, not a funding problem", said a banker.

He added that the outlook for buy-to-lets was uncertain, which is why it makes sense for B&B to raise additional capital.

B&B today announced that its chief executive would step down due to ill-health with immediate effect. Pending the recruitment of a replacement, B&B will be run by its chairman, Rod Kent, who is best known in the City for building up the merchant bank Close Brothers over many years.

Kent may also make further senior management changes.

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