Bradford joins list of UK banks in search of funding

BRADFORD BINGLEY yesterday became the latest British bank to tap shareholders for cash, announcing that it was looking to raise £300 million (€377 million) in a rights issue.

The company is offering 16 new shares to investors for every 25 shares currently held at 82 pence each - a 48 per cent discount to Tuesday's official closing price.

Just a month ago the company dismissed rumours of an upcoming rights issue as "press speculation", stressing its "strong capital base" and asserting that its business activities were funded "through 2008 and into 2009".

Investors punished the stock, which fell by as much as 11 per cent in early trading yesterday, driving the share price to levels last seen when the company floated in 2000.

Bradford Bingley's move follows much bigger rights issues by Royal Bank of Scotland and Halifax Bank of Scotland, which are raising £12 billion and £4 billion, respectively.

Nevertheless, it is far from small beer to the Yorkshire bank, representing more than 30 per cent of the bank's market capitalisation.

The massive writedowns triggered by the credit crunch have forced lenders across the world to shore up their balance sheets.

Pressure from the Bank of England to do so may also be a contributory factor. In April, it relaxed its lending policies, allowing banks to exchange up to £50 billion in mortgage-backed securities for government bonds.

Bradford's plummeting share price resembles that of fellow bank Alliance Leicester. On Tuesday, it hit its lowest level since its 1997 flotation after the bank reported £192 million in write-downs, admitting that it was "walking a tightrope" due to "treasury impairments" that were "higher than expected".

Alliance has now announced almost £400 million in write-downs.

British housing market woes have hit Alliance harder than most - it is down by 55 per cent over the last year, whereas the FTSE 350 Bank Index is down by "just" 28 per cent.

Barratt Developments, Britain's second-largest housebuilder, outlined its concerns yesterday, warning that market conditions had "deteriorated significantly" due to the "unprecedented reduction in mortgage availability combined with declining consumer confidence".

Barratt does not foresee a "meaningful upturn in the housing market", a position which is shared, it seems, by the British government.

On Tuesday, housing minister Caroline Flint unwittingly allowed her notes for a cabinet meeting to be photographed. The document warned that housebuilding was "stalling" and that prices were set to fall by 5 to 10 per cent "at best". "We can't know how bad it will get," the gloomy forecast concluded.

British financials are not alone in their pains. Yesterday saw BNP Paribas, France's largest bank, announce over €500 million in writedowns, with chief executive Baudouin Prot admitting that the financial markets were "more difficult than expected".

Mr Prot declined to give guidance for the year due to the "volatility of revenues and the overall environment".