Letting specialists see shares slump in UK

British buy-to-let specialist Bradford & Bingley saw its share price tumble today after it became the third major bank to ask shareholders for cash.

The plan for a £300m (€377m) rights issue was announced just weeks after B&B told the City it had no need to go to the stock market for a bail-out.

It will now ask shareholders – including 850,000 private investors – to take up its offer of 16 new shares for every 25 currently held.

Following the lead of Royal Bank of Scotland and Halifax Bank of Scotland, B&B said the move would offset previously announced falls in the value of certain investments, as well boost its position in a competitive market.

It added that demand for buy-to-let mortgages remained high, with continuing tenant demand and rising rents.

However, investors took the news poorly as Bradford & Bingley (B&B) shares slumped to their lowest point since the former building society listed on the London market in 2000.

Richard Hunter, head of equities at Hargreaves Lansdown, said today’s 10% share price fall reflected weak sentiment towards the bank.

He added: “For the private investor, the question is whether to commit further capital to B&B at this time, whilst the market consensus remains an outright sell on the shares.”

The fully underwritten share issue is at a price of 82p, a discount of 48% on the company’s closing figure last night.

Around 35% of the company’s shares are in the hands of private investors, who have holdings of up to 250 shares. Many of these shareholders are former B&B members who picked up stock when the society demutualised.

They will now have to decide whether to stump up cash in order to prevent their stake in the bank from being diluted.

The latest rights issue comes as banks look to strengthen their balance sheets after incurring losses on securities backed by US mortgages.

Bradford & Bingley has come under the funding spotlight given that 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.