Bankers struggle with B&B rump as shares languish

LONDON (Reuters) - Top British banks that agreed to provide a safety net in Bradford & Bingley's cash call could end up with a stake of almost 20 percent, as the lender's shares languish and the Friday deadline for underwriters nears.

Investment banks Citi and UBS were left with more than 70 percent of the mortgage lender's 400 million pound twice-restructured rights issue when it closed Friday, with shares hovering just above a deeply discounted 55 pence.

Only just less than 28 percent was sold to shareholders.

Citi and UBS have until close on Friday to place the rump, or remainder of the stock, but B&B BB.L shares have languished well below 55 pence for much of the week.

Since Monday, when the stock hit almost 57 pence, it has not topped the 55 mark and the shares were changing hands at 51.5 at 02:43 p.m. on Thursday.

Sources familiar with the matter said the two investment banks were now likely to fall back on sub-underwriting agreements, including a deal with six clearing banks -- HSBC (HSBA.L), Lloyds TSB (LLOY.L), HBOS HBOS.L, Barclays (BARC.L), Santander's (SAN.MC) Abbey and Royal Bank of Scotland (RBS.L).

Citi and UBS are expected to end up with as much as 75 million pounds' worth of shares, depending on their success in placing the rump.

"Given where the price is trading, it is hard to see that the underwriters will have had much success (in selling the rump)," one source familiar with the matter said.

"All the banks will end up with a holding."

Initial underwriting agreements had seen the clearing banks sign up to as much as 220 million pounds of the rights issue, which totalled 455 million including expenses.

As almost 28 percent of the new shares were sold, the banks are likely to end up with a slightly smaller share, but that could still amount to around as much as 4 percent each for larger banks participating in the deal, the sources said.

Four top shareholders -- Standard Life, Legal & General, M&G and Insight -- also agreed to sub-underwrite the B&B rights issue, but are understood to have taken up their roughly 13 percent share in the original cash call. It was unclear whether all four would take part in the sub-underwriting.

The sources said the 10 institutions sub-underwriting the fundraising were expected to end up with as much as between 25 million and 50 million pounds' worth of shares each.

The underwriters have until the close of trade on Friday to sell the 597 million shares unsold in the initial issue. B&B is expected to disclose the results of the placement on Tuesday.

All institutions taking part in the sub-underwriting have signed up to a 20-day lock-up period during which they cannot sell the B&B shares on the market, one of the sources said.

Regulatory announcements earlier in the week showed Barclays currently holds 7.4 percent in B&B, but that includes shares bought by Barclays Global Investors on behalf of clients and does not reflect shares it could be left with through the rights issue. It could also include shares bought on the market.

AXA (AXAF.PA) and HBOS's Insight also detailed their holdings this week, of 6 percent and 5 percent respectively.

One of the sources said the underwriting banks were not shorting B&B shares ahead of the cash call's close in an attempt to hedge their positions, as has been the case in other issues.

B&B's rights issue is the latest of several such cash injections by banks hit by the credit crunch, following HBOS HBOS.L and Royal Bank of Scotland (RBS.L), among others.