Mortgage bank in £300m cash call

9:35am Wednesday 14th May 2008

Mortgage bank Bradford & Bingley has asked shareholders for £300 million in a bid to bolster its balance sheet.

The rights issue, which will see shares offered at a 48% discount to the company's share price on Tuesday night, follows similar moves by larger banking groups Royal Bank of Scotland and Halifax Bank of Scotland.

Bradford & Bingley denied as recently as last month that it was planning to carry out a cash call. However, it said the move would reinforce its position as one of the UK's "better capitalised" banks.

The former building society, which listed on the London stock market in December 2000, will offer 16 shares for every 25 held, at a price of 82p.

Around 35% of the company's shares are in the hands of private investors, who have holdings of up to 250 shares. Many of these shareholders are former members who picked up stock when Bradford & Bingley demutualised.

The latest rights issue comes as banks look to strengthen their balance sheets after incurring losses on securities backed by US mortgages.

Bradford & Bingley has come under the funding spotlight given that it previously raised more than a quarter of its capital through the wholesale money markets before these effectively dried up, triggering the problems that ultimately led to the nationalisation of Northern Rock.

However, the group made moves to raise capital and reduce its reliance on credit markets. It sold £4 billion in loans to boost cash reserves, and has switched focus to lower-risk lending and increased savers' deposits, taking in £1.9 billion during the first quarter of this year.

Last month it rejected speculation that it needed to raise funds through a rights issue. But now Bradford & Bingley says strengthening the company's capital base is the correct course of action during a time of "continued financial market dislocation".

Chief executive Steven Crawshaw said: "The rights issue we have announced will strengthen our financial standing, reinforcing our position as one of the better capitalised banks in the UK."

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