UK mortgage bank denies equity move rumours

UK Mortgage bank Bradford & Bingley today sought to scotch rumours that it was planning to launch a rights issue.

The group’s board was rumoured to be planning to make a decision this week on whether to go ahead with the move, according to Sunday newspapers.

The reports claimed that while the exact amount had yet to be decided upon, the bank was likely to to try to raise hundreds of millions of pounds to bolster its balance sheet.

But Bradford & Bingley today insisted it had no such plans, adding that it had a strong capital base.

It issued a statement saying: “Contrary to press speculation today, Bradford & Bingley announces that it is not intending to issue equity capital by way of a rights issue or otherwise.

“Bradford & Bingley has a strong capital base, above its regulatory requirements, and as a result of the board’s conservative approach, has funded its business activities through 2008 and into 2009.

“In the current market environment, the board will naturally continue to monitor closely the balance sheet strength of the business and its funding plans.”

The group, which is one of the UK’s biggest buy-to-let lenders, has been the subject of regular speculation since the credit crunch first hit.

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.

The group has since focused on funding its lending through retail deposits, taking in £1.3bn (€1.6bn) during the first four to six weeks of this year, and it now regularly features on best buy tables as it looks to attract more savers.

But it is still thought to have scaled back its lending in recent months, along with most other mortgage groups.

Last month ratings agency Moody’s downgraded the group’s long-term ratings to reflect slower business growth, a deterioration in its asset quality and a weaker capital position.

Bradford & Bingley’s share price has fallen by 35% since the beginning of the year to close on Friday at just 167.25p.

In February it reported a sharp rise in mortgage arrears and bad debts as its annual profits slumped by almost half.

The mortgage lender said 6,170 of its borrowers fell three months or more in arrears last year – 42% ahead of 2006 – while bad debt provisions trebled to £22.5m (€28m). This contributed to a 49% drop in pre-tax profits to £126m (€157m).

The group’s chief executive Steven Crawshaw, who also chairs the Council of Mortgage Lenders, warned on Friday that mortgage lending by all lenders could be half last year’s £108bn (€135bn) unless the Bank of England pumped more money into the market.

Prime Minister Gordon Brown will this week meet the heads of the UK’s biggest banks to discuss ways of easing the problems in the mortgage market.

The mortgage market is currently changing on a daily basis as lenders hike their rates, increase the deposits they demand and pull deals that are attracting too much business.

Lenders last week continued to raise the cost of fixed rate deals despite the Bank of England cutting interest rates by 0.25% to 5%.

The average cost of a new two-year fixed-rate mortgage for someone with a 5% deposit had soared to a seven-and-a-half-year high of 6.64% at the end of last month as banks passed on to consumers the higher borrowing costs they themselves face.

Meanwhile, it is feared that two of the United State’s biggest banks, Citi and Merrill Lynch, will this week announce further sub-prime losses of up to US$15bn (€9.5bn).