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ABI sounds warning on B&B rights issue and TPG proposals

The Association of British Insurers has warned there are “breaches of sound governance” in the proposals for Bradford & Bingley’s rights issue and sale of a major stake to Texas Pacific Group.

The B&B board has backed proposals for a rights issue and sale of a 23 per cent stake to TPG over alternative proposals from Clive Cowdery’s investment firm Resolution for a £400m injection in exchange for a controlling stake in the bank.

Shareholders are set to vote on the rights issue and TPG proposals on July 7.

The Institutional Voting Information Service, which is operated by the ABI has placed an amber top on the B&B proposals, which means it is advising shareholders to apply “considered judgment” before voting on the resolutions.

The ABI says the breaches of governance would normally warrant a red top, but it opted for amber due to the exceptional circumstances the bank is facing.

ABI director of investment affairs Peter Montagnon says: “Fundamental principles breached include the right of pre-emption whereby new shares should be offered to existing shareholders in proportion to their existing holdings, and the preferential treatment afforded to TPG both in terms of protection against dilution and the opportunity to participate in future fund raising on preferential terms.

“This imposes a substantial transfer of value from existing shareholders to TPG, while the fact that the rights issue cannot proceed without simultaneous agreement to the TPG deal limits the ability of shareholders to exercise their right of judgment.

He adds: “We remain very disappointed that the board of Bradford & Bingley failed to ensure a timely flow of management information that could have prevented the need for this unsatisfactory arrangement and urge the regulatory authorities to take additional care in encouraging bank boards not to put themselves in such a position in future.

“Shareholders must now make a considered judgement. Insofar as they are willing to extend their support on this occasion, this should be on the clear understanding the breach of fundamental protections is not a precedent.”

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