BRADFORD & Bingley plans to sell a 23-percent stake to United States leveraged buyout firm TPG for 179 million pounds (US$351 million) as mortgage defaults increase and earnings decline.
The lender dropped as much as 32 percent in London trading after the company slashed the price of its rights offering. Pretax earnings excluding one-time costs dropped 48 percent to 56 million pounds in the first four months of the year, and its chief executive officer Stephen Crawshaw, 47, resigned for health reasons, the bank said yesterday.
The injection by Texas-based TPG comes almost nine months after the UK government bailed out Northern Rock, the country's third-biggest mortgage lender. British banking stocks fell on concern that foreclosures would rise as the domestic housing market worsens.
"They are clearly signaling a deterioration in the housing market and overall credit quality," said Robert Talbut, London-based chief investment officer at Royal London Asset Management. "We are not out of the woods as far as the credit crisis is concerned and the real economy effects are rippling through."
Bradford & Bingley, which provides one in five buy-to-let loans in the UK, lost 22 percent to 68.5 pence at 9:45am yesterday, valuing the bank at 423 million pounds. HBOS, Britain's biggest mortgage bank, fell 7.9 percent. Alliance & Leicester, which gets a quarter of its revenue from mortgages and savings, declined 6.3 percent.
TPG, formerly known as Texas Pacific Group and started by David Bonderman and Jim Coulter, bought TXU Corp last year in the largest US leveraged buyout. It led a US$7-billion investment in Washington Mutual, the largest US savings and loan company.
The Bradford & Bingley investment would be the firm's first in Europe since it acquired Telediffusion de France, a French owner of television and radio broadcast towers, in October 2006, according to data compiled by Bloomberg News.
Bradford & Bingley said repayments three months or more in arrears rose to 2.16 percent at the end of April from 1.63 percent on December 31. The company said it was "cautious" about economic conditions for the rest of the year.
Almost 1 percent of buy-to-let mortgages in the UK were more than three months in arrears in the first quarter, up 50 percent from a year earlier.
Bradford & Bingley took a bad-loan charge of 36 million pounds and 64 million pounds for its structured finance investments, the company said.
"The fact they're taking more writedowns is not a surprise at all," said Andrew Lynch, of Schroder Investment Management in London.
"But with TPG coming on board, if they are now saying they can see value, that hopefully should start putting a floor on the market price. The share price might just come off its knees."