The collapse of TPG Capital's rescue package for Bradford & Bingley is an embarrassment to Goldman Sachs, the Wall Street investment bank that arranged the deal in a matter of days when an earlier fundraising plan ran aground five weeks ago, writes Chris Hughes.B&B had previously aimed to raise £300m through a rights issue but this fell apart when the mortgage bank revealed that it was about to issue a profit warning.Goldman was not leading the rights issue, but it was instrumental in bringing in TPG and delivering a deal that seemed to provide immediate certainty over B&B's financial position. The new plan was for TPG to inject capital alongside a repriced rights issue.However, the TPG deal encountered immediate hostility from B&B investors, who argued that it was priced too advantageously for the US buy-out group. Investors also said they themselves could have fully funded a recapitalisation of B&B - as they now are - had they been given the opportunity five weeks ago
The collapse of TPG Capital's rescue package for Bradford & Bingley is an embarrassment to Goldman Sachs, the Wall Street investment bank that arranged the deal in a matter of days when an earlier fundraising plan ran aground five weeks ago, writes Chris Hughes.
B&B had previously aimed to raise £300m through a rights issue but this fell apart when the mortgage bank revealed that it was about to issue a profit warning.
Goldman was not leading the rights issue, but it was instrumental in bringing in TPG and delivering a deal that seemed to provide immediate certainty over B&B's financial position. The new plan was for TPG to inject capital alongside a repriced rights issue.
However, the TPG deal encountered immediate hostility from B&B investors, who argued that it was priced too advantageously for the US buy-out group. Investors also said they themselves could have fully funded a recapitalisation of B&B - as they now are - had they been given the opportunity five weeks ago
Moody blues cast a shadow over more than just B&B None of the participants emerges with credit from the collapse of the deal by US private equity house Texas Pacific Group to inject cash into stricken mortgage bank Bradford & Bingley. TPG has not done anything wrong with a capital W: it made use of a get-out clause allowing it to walk away from its proposal if B&B suffered two credit downgrades. It can attempt to justify its conduct by saying last week's slashing of the bank's rating by agency Moody's materially altered the parameters of the deal, and that it has a duty to its own investors that comes ahead of its obligation to B&B. But this leaves a nasty taste in the mouth coming from a group that only days ago was promoting its deal on the basis of certainty, security and speed - sure, the get-out clause was in all the documents, but no one deemed it worth discussing at that stage. TPG's action was technically legitimate, but it does not look gentlemanly. That will hurt its reputation - which has already been affected by its controversial involvement with department store Debenhams - and its ability to do other deals in the UK banking sector. Its conduct also gives ammunition to critics of the private equity industry as a whole, who see it as nakedly profit-seeking with little care for the longer-term well-being of companies, shareholders or employees. The rest of the sector will certainly not thank TPG for that.
None of the participants emerges with credit from the collapse of the deal by US private equity house Texas Pacific Group to inject cash into stricken mortgage bank Bradford & Bingley. TPG has not done anything wrong with a capital W: it made use of a get-out clause allowing it to walk away from its proposal if B&B suffered two credit downgrades. It can attempt to justify its conduct by saying last week's slashing of the bank's rating by agency Moody's materially altered the parameters of the deal, and that it has a duty to its own investors that comes ahead of its obligation to B&B.
But this leaves a nasty taste in the mouth coming from a group that only days ago was promoting its deal on the basis of certainty, security and speed - sure, the get-out clause was in all the documents, but no one deemed it worth discussing at that stage. TPG's action was technically legitimate, but it does not look gentlemanly. That will hurt its reputation - which has already been affected by its controversial involvement with department store Debenhams - and its ability to do other deals in the UK banking sector. Its conduct also gives ammunition to critics of the private equity industry as a whole, who see it as nakedly profit-seeking with little care for the longer-term well-being of companies, shareholders or employees. The rest of the sector will certainly not thank TPG for that.
