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Bradford & Bingley rescued (again)

• Robert Peston
• 3 Jul 08, 10:31 PM

I have learned tonight that a vital 拢400m fund raising by Bradford & Bingley, the battered buy-to-let bank, has been rescued for a second time.

Leading City institutions have rallied round to provide 拢179m of vital equity following a last-minute decision by the US private-equity house, Texas Pacific Group, to walk away from the deal.

TPG backed away from providing the new money after Moody's, the credit rating agency, decided it was downgrading the debt of Bradford & Bingley.

It would have been disastrous for confidence in the bank if new money was not found to replace TPG.

So the City watchdog, the Financial Services Authority, has played a central role in helping to organise what will be seen as an emergency fund-raising.

Now that the cash has been found, bankers say there is no reason for B&B's depositors or creditors to have any concern about it fundamental soundness.

However this is the second time in just the past few weeks that this vital fund-raising has gone to the brink of collapse.

TPG's decision to turn its back on B&B, having initially been characterised as the brave rescuer of the bank, may well lead to it facing criticism.

UPDATE 22:48: The City institutions behind the rescue are the ones that were behind Clive Cowdery's recent attempt to take control of B&B.

Cowdery walked away after he was refused access to B&B's books by the bank's board, led by the chairman, Rod Kent.

Mr Kent's decision to pin his hopes on TPG now looks to have been misplaced. Some shareholders may question whether he should remain at the helm of the bank.

A formal announcement of the fund-raising rescue will be made some time during the course of the night. Without it, B&B's shares would have collapsed (again) in the morning - and they are likely to be pretty weak anyway, following the Moody's downgrade.

It was confirmed around midnight that a group of leading City institutions UPDATE 06:26, 04 July:(with more than a nudge from the Financial Services Authority) has rescued B&B's emergency fund raising, as I revealed last night.

The technical detail is that B&B will (once again) revert to a conventional rights issue of shares to raise the 拢400m in total it wants. The rights issue has been underwritten by the investment banks, Citigroup and UBS (both of which have recently had to raise precious capital themselves).

The per-share subscription price will remain 55p. And a shareholder group including Legal & General, Standard Life, the Pru and HBOS's Insight arm is promising to support the expanded rights issue. They are B&B's largest shareholders and were also the backers of Clive Cowdery's rebuffed plan to acquire a controlling stake in B&B.

So B&B will raise its capital - which should be of great comfort to B&B's depositors and creditors.

However, Moody's announcement last night of its downgrade to B&B's credit rating makes for pretty dismal reading. It talks of a "substantial deterioration in the bank's asset quality" and warns that arrears will worsen on its buy-to-let mortgages in coming months.

So the news about B&B is good and bad. Last night bankers were expecting B&B's share price to fall this morning.

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