Fears over B&B cash call as its shares dive

Shares in Bradford & Bingley, the mortgage bank heavily involved in the buy-to-let market, crashed 14% tonight, raising fears over its £300 million rights issue.

Since B&B, a former building society with more than 800,000 small shareholders, announced the fund-raising to shore up its balance sheet, its shares have fallen 28%. The shares were tonight down 19p at 114p.

If they were to fall by another 20% between now and 11 July - the last day on which investors will decide whether or not to stump up the new cash - the rights issue would be in serious trouble. The new shares are being sold at 82p each.

B&B will end up with its cash because it has paid investment banks Citigroup and UBS several million pounds to underwrite the issue. It is they who will end up with any shares rejected by existing investors.

However, a seriously poor rights issue take-up could be a body blow for B&B's under-siege chief executive Steven Crawshaw, who had already incurred the wrath of shareholders by denying a month ago that B&B planned to raise money through a rights issue or other equity placing.

He claimed last week that the £300 million fund-raiser was justified because Royal Bank of Scotland and HBOS had launched their own rights issues and, he said, "the tone has been set".

Like its rivals, B&B also said it would pay this year's first dividend in shares rather than cash and admitted future dividends would be slashed. Analysts said sentiment against B&B had been further hit since the Bank of England Inflation Report last week said the economic out-look for the UK had worsened.

B&B's shares have fallen 56% so far this year, to their lowest since flotation at 248p in December 2000. The bank is now valued at just £712 million.

Sandy Chen at Panmure Gordon has a sell recommendation on the stock. He said: "The macroeconomic prospects in the UK have deteriorated significantly, and capital pressures are likely to rise more than banks expected. And the macro news could get worse."

The bank, founded as a building society more than 150 years ago, has already cut back its mortgage lending, introduced tougher borrowing criteria and raised interest rates on riskier mortgages. The fear among investors is that the worst housing slump in two decades will spread contagion into the buy-to-let market if properties cannot be sold.