Bradford & Bingley rumours wipe £2.5bn off UK bank shares

by Gill Montia

Story link: Bradford & Bingley rumours wipe £2.5bn off UK bank shares

Bradford & Bingley (B&B), the buy-to-let lender, has denied rumours that it is in financial difficulties.

Over the weekend, reports in the press suggested that the lender would be forced into an emergency rights issue to shore up its capital base.

According to B&B’s finance director, the bank raised £2.5 billion in the wholesale market last autumn and has a further £2 billion funding facility which it has not yet used.

In addition, B&B has substantial customer deposits, from which it funds over 50% of its lending.

However, these reassurances did nothing to prevent more than £2.5 billion being wiped off the value of Britain’s High Street banks today. Shares in B&B have falled 9.25p to 158p, having declined around 35% in value since the beginning of this year.

The reaction of investors served as a reminder of a similar incident with HBOS in March, when the bank’s shares fell 17% on rumours it had applied to the Bank of England for an emergency loan.

These events were followed by a stern warning from the Financial Services Authority that City rumour mongers and short-traders would be identified and punished.

Analysts are expecting a number of British banks to be forced into raising new capital, because they are poorly capitalised compared with other European banks, although some may prefer to sell assets before exposing themselves to a rights issue.

According to a report in The Times, analyst at investment bank Lehman Brothers are warning that when one British bank announces a rights issue, others may be forced to follow suit.

B&B, Alliance & Leicester and HBOS are seen as most vulnerable because of their funding models.