Citigroup, UBS left holding the bag

The International Herald Tribune is reporting Investors shun rights offer by British lender.

Bradford & Bingley, the biggest buy-to-let mortgage lender in Britain, revealed Monday that its bankers have been left with more than 70 percent of its £400 million rights issue, confirming expectations of a poor take-up by investors.

B&B, which has been hit hard by the credit squeeze, also announced it has hired the former head of rival Alliance & Leicester as its new chief executive.

The B&B rights issue, in which a company raises fresh capital by creating and selling new shares to existing shareholders, was one of several by British banking institutions in recent months as they seek to shore up capital lost by the credit squeeze.

Although B&B's 27.8 percent takeup by investors of the new shares was better than the 8.29 percent achieved by the Halifax Bank of Scotland on its much larger £4 billion rights issue, the B&B offering still left underwriters with around 300 million, or $560 million, of shares.

The underwriters, UBS and Citigroup, now have until Friday to offload those shares or become owners.

B&B's rights issue has been more troubled than most, with the lender forced to restructure the offer twice.

It first announced plans to sell some £300 million worth of shares at 82 pence in May, but as its shares fell below that level - and following a profit warning - the lender announced alternative plans to offer cheaper shares and sell a 23 percent stake to Texas Pacific.

It had to switch course again when the U.S. private equity firm backed out of that deal in July, deciding to press on with an enlarged £400 million rights issue at a deeply discounted price of 55 pence per share.

Tougher And Tougher To Unload Offerings

Nearly every day it is getting tougher to unload debt offerings. Banks are even struggling to refinance their own debt as noted in Banks Scramble To Refinance Long-Term Debt. AIG bonds are trading at disastrous spreads as noted in What Banks Are Likely To Survive?

The credit crunch is alive and well and picking up steam in spite of Bernanke's efforts. Spreads are widening and the cost of raising money is soaring even as treasury yields are stable to declining. This is just what one would expect in deflationary times.

How much longer underwriters are willing to assume such risks, and how much debt investors are willing to own are both coming into question. For now, the deals are still getting done. Don't assume this will always be the case. There is not an infinite supply of bagholders.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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