Some good news at last from the banking sector

Posted on 23 June 2008 by Ray Boulger

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Clive Cowdery, who made an estimated £150m profit from the sale this year of his Resolution vehicle to Pearl Group after buying up and consolidating closed with profit funds from several insurance companies after the dot.com bubble burst, has now turned his attention to Bradford & Bingley, with a view to trying a similar trick in the banking sector.

His advances, to control a 49% stake in B&B, have been rejected by the B&B Board, no doubt at least partly because his proposals would involve a management shake up. However, he has the backing of several large shareholders in B&B, including Standard Life, Legal & General and Prudential, and is offering to inject £400m into B&B at 72p per share, the same amount US Private Equity Group, TPG, offered to subscribe, but at only 55p per share. Mr Cowdery already owns 2.9% of B&B.

Mr Cowdery will obviousy need Bank of England approval for his offer to go through, but it is hard to believe he would have gone public with this offer without at least a nod from the Bank that it would look on an offer favourably. As his own banking experience is limited this suggests that he has some unamed experienced bankers already lined up if the offer succeeds.

This news should help the share prices of banks, such as Alliance & Leicester, which could be on Mr Cowdery’s list of other possible acquisitions. But it could also help other banks heavily committed to the property market, such as HBOS, whose shares again fell slightly below the rights issue price today, on the basis that some large institutional investors appear to be taking the view that at least some banking shares have fallen far enough.

The bad news for mortgage borrowers is that in the long term if Mr Cowdery’s plans succeed competition will be reduced as he merges his acquisitions. However, consolidation is probably going to happen anyway and this negative pales into insignificance if Mr Cowdery’s interest acts as a catalyst to start restoring some confidence in the banking sector. If this happens, and it is quite a big if, the improvement in the supply of mortgage finance and the terms on which it is available will start to improve. This will not only benefit mortgage borrowers but also help to restore some confidence to the property market.

NB. I have a shareholding in Bradford & Bingley.

 

Categories: Bank of England, Mortgages, Property market

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