Wednesday, May 14, 2008

The shareholders begin to pay

Its the fashionable thing - a rights issue.

After weeks of denial, Bradford and Bingley finally admitted that they needed more money to shore up their battered balance sheet. They are looking for £300 million of new money. The news won't make their shareholders happy. The new shares will be discounted at 48 percent of the B&B's Tuesday's closing price.

However, the B&B are not alone. Other banks are lining up with similar offerings. The Royal Bank of Scotland wants £12 billion more, while HBOS is looking to raise £4 billion. Barclays might also follow the growing trend.

Shareholders have only themselves to blame for these losses. When the housing bubble was raging, and banks like the B&B were piling into the buy to let market, shareholders fell asleep. Rather than asking questions about risk, they offered huge bonuses. Now this negligence is being repaid with massive shareholder losses.

The experience will offer some grim but valuable lessons for every shareholder. Control the CEO, make sure you know what she is doing, and above all, don't reward her for excessive risk taking.


  1. Which goes first? The B&B or the A&L?

  2. A&L? Surely not? I have to admit that I have £30K in there and realise that I should move it.

    BUT, are A&L in such a bad way and won't the Govt just step in like they did with N.Rock and socialize the debt?


  3. Khan, if A&L went down, I think you have a reasonable chance of getting your money back via a BoE bailout. Good luck, all the same.

  4. Cws, thanks for that. However I've been umming & arrring about it and have JUST bought another £15K NS&I index cert for 3 years...

    The rest is in my ISA waiting to be xfered to Lloyds!

    Juggle, juggle!


  5. These days few shareholders hang on to shares long enough to even care what happens year on year. Boards know this, and therefore milk the shareholders for every last piece of bouns they can.