Q&A: Troubles at Bradford & Bingley

The Bradford-based lender faces a number of problems

The firm is struggling as the UK mortgage market deteriorates.

To shore up its finances, the lender was hoping to sell a 23% stake to US private equity giant Texas Pacific Group for �179m and asking its shareholders for extra cash.

The TPG deal has fallen through - though City institutions have rallied round to raise the cash.

Why is B&B in the red?

The bank has blamed its problems on "difficult economic conditions" as home-owners struggle to repay loans, particularly regarding buy-to-let mortgages that B&B specialises in.

The value of its buy-to-let mortgages, where borrowers are either more than three months behind with payments or properties have been repossessed increased from �828m at 31 December to �1.1bn at 30 April.

The firm's return on lending is also under pressure because, like all banks, B&B faces higher lending costs due to the credit crunch.

It has also suffered losses on what it calls its "structured finance portfolio" - investments related to the US sub-prime market.

Is B&B the new Northern Rock?

The Bradford-based lender is no Northern Rock.

In its trading statement, it says it can fund itself into 2009 despite problems in money markets.

The �400m it is raising from the city institutions and its shareholders will provide an additional financial cushion.

B&B is by no means alone in trying to raise capital.

Banks worldwide are raising funds in a similar manner to plug losses.

However, there is speculation that the lender could be a takeover target as its shares plunge.

What does this mean for shareholders?

B&B shares have plunged to close to 60p in recent weeks - from yearly highs of more than �4.50.

WHAT IS A RIGHTS ISSUE? Companies issue extra shares to raise money They are offered to existing shareholders, usually at a discount to the current share price Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

B&B shareholders are being asked to buy new shares at 55p each - down from an earlier price of 82p.

Royal Bank of Scotland has also had a rights issue - which was well subscribed to - while Halifax-owner HBOS is also going to its shareholders for cash.

Who are Texas Pacific and why were they interested in B&B?

Texas Pacific Global, known as TPG, is a global private investment firm with over $30bn worth of investments.

Its first big investment was in Continental Airlines in the early 1990s. It encountered controversy in the UK after its purchase of in-flight catering company Gate Gourmet.

Gate Gourmet fired workers who had walked out in protest at the firm's move to hire seasonal workers.

The dismissals triggered a sympathy strike by British Airways, which caused widespread disruption in 2005.

TPG is regarded as a contrarian investor and has often taken stakes in companies and industries that have fallen out of favour with more mainstream funds.

It was paying a cut price for the stake in B&B but backed away after ratings agency Moody's downgraded the lender's debt.

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