UK - TPG becomes largest shareholder in Bradford and Bingley

The move comes barely two weeks after B&B launched a rights issue at a price of 82 pence per share, which was to be underwritten by Citigroup and UBS and was set to raise £300m for the beleaguered bank. However, having assured investors that it was trading in line with guidance given at the annual meeting last month, the bank was forced to issue a profits warning 11 days ago that revealed losses totalling £8m in the first four months of 2008 due to rising arrears in its mortgage book.

B&B subsequently took the extraordinary move of scrapping its previous rights issue and replacing it with a new issue that was repriced at 55 pence per share. Reports suggest that the move was designed to head off a fight with the underwriters, who, it was feared, would claim that the revised profit forecasts constituted a Material Adverse Effect and were therefore legally entitled to walk away from the deal.

In an effort to bolster the amount of capital raised from the issue, which will total £258m, the bank has therefore brought in TPG, which has provided a cash injection of £179m, meaning that B&B should now recieve about £400m after expenses. TPG will, in return, take a 23% stake in B&B, making it the largest single shareholder, and will appoint two non-executive directors to the board. It is thought that the deal, which was the product of talks with both the Treasury and the Financial Services Authority, could open the door for other private equity firms to take equity positions in under-valued financial institutions.

Shares in the bank dropped by 24.1% yesterday after the news was announced. Goldman Sachs advised B&B on the transaction, while Deutsche Bank advised TPG.

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