Bradford & Bingley shareholder revolt demanded

Independent investment banking group Collins Stewart has called on Bradford & Bingley shareholders to vote against the repriced rights issue announced yesterday.

The high street lender had initially called for £300 million of investment from existing shareholders on May 14th in the wake of deterioration in the bank's financial position.

However, issuing a profit warning yesterday Bradford & Bingley announced this plan had been radically altered.

In its place the buy-to-let specialist has agreed a deal with American investors Texas Pacific Group (TPG), which sees the company take a 23 per cent stake in the British lender.

Under the terms of the new agreement Bradford & Bingley has reducing the size of the cash call to £258 million, with the cost per share falling to 55 pence from 82 pence.

This has significantly reduced the value of existing investors' holdings.

Shareholders are also angered at the way the rights issue has been mismanaged in a second regard.

When first announced the rights issue was to cost £24 million - including £9 million in fees for twin underwriters UBS and Citigroup.

Yesterday, the funds to be raised through the rights issue was reduced to £258 million, yet its cost shot up to £37 million - a massive 14 per cent of the total capital injection.

"Management claim it wanted to avoid the stock trading below the previous issue price of 82p - the share price move yesterday is clearly much more damaging to shareholders than the previous issue having been left in place and the underwriters potentially holding significant amounts of stock," Collins Stewart analyst Alex Potter told the Guardian newspaper.

He added: "We believe shareholders should vote against the new issue at the upcoming emergency general meeting and force management to revert to the old scheme."

Bradford & Bingley was forced to make the unprecedented move of altering the terms of a rights issue half way through the process as trading conditions have continued to deteriorate.

Yesterday the company announced it has made a loss of £8 million during the first four months of the year, driven by an increase in defaults by buy-to-let mortgage holders.

At 15:000 BST shares in the organisation were trading at 69.00 pence per share.