Bradford & Bingley sells 23% stake after suffering losses

UK mortgage lender Bradford & Bingley has agreed to sell a 23% stake of the company to US private equity firm TPG Capital following announcements of losses for the first four months of the year.

For the first four months of 2008, Bradford & Bingley made an overall pre-tax loss of £8 million. This compares with £107 million profit for the same period the year before.

TPG Capital has agreed to invest approximately £179 million, which will result in it owning 23% of the company. The mortgage lender has also reduced the amount of capital it plans to raise through a rights issuance to £258 million from £300 million, at the same time discounting the subscription price to 55 pence per share from 82 pence per share. Its original proposal for share issuance was made on May 14. The company cited the reasons for discounting the share price as “reduced trading expectation for Bradford & Bingley and challenging stock market conditions for UK financial institutions”.

The mortgage lender’s group chief executive, Steven Crawshaw, has stepped down. The company said this was for health reasons. Chairman Rod Kent has become executive chairman while the company seeks a new chief executive. Nick Cosh, a senior independent director, has been appointed deputy chairman.

“The past few weeks have been challenging for Bradford & Bingley, and this is a disappointing trading update reflecting a more difficult market environment,” said Kent.

One source of the firm’s troubles has been delays in receiving payments for mortgages. The performance of acquired loans has been worse than that of loans originated by the company - 4.47% were more than three months in arrears on April 30, compared with 3.04% at the start of the year, while only 1.54% of originated loans were in arrears at the same time, up from 1.2%.

 In a trading statement from June 2, Bradford & Bingley said arrears in loans it had bought from US financial services firm GMAC had been higher than expected. In March 2007, the company completed the acquisition of an £803 million loan portfolio from GMAC-RFC, the mortgage provider division of GMAC, and the month before acquired another £529 million loan portfolio from the same firm.

The company’s recent losses were also in part attributed to losses on its structured finance portfolio. During the first four months of 2008, the company has experienced fair value reductions of £47 million and impairment charges of £42 million in relation to its structured finance portfolio. In addition, the firm recorded a £52 million reduction in value after tax in the available for sale reserve on the balance sheet. As of April 30, the total value of the structured finance portfolio assets was £944 million, down from £1.176 billion at the start of the year.

In May, Bradford & Bingley also sold collateralised debt obligation and collateralised loan obligation assets with a carrying value of £68 million (as at April 30). This resulted in a loss on sale of approximately £7 million before tax. In addition, an unrealised loss of £20 million was revealed, reflecting writedowns on these assets.

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