B&B warns on mortgage market

By Clara Ferreira-Marques

LONDON (Reuters) - Bradford & Bingley issued a stark warning on the state of the mortgage market on Monday and slashed the price of its emergency fundraising to secure a private equity lifeline, hitting bank shares across Europe.

In the bleakest outlook yet from a British lender -- weeks after it last spoke to investors -- B&B said it had tumbled to a loss for the first four months of the year and saw continued pressure on margins as funding costs remain high and the risk of customers defaulting on loans rises faster than expected.

The bank blamed a sharp deterioration in April and that was backed on Monday by official data which showed new home loan approvals fell to a new record low that month.

B&B's shares, which have already lost almost two-thirds of their value over the past year, slumped a further 32 percent to a record low of 60 pence. The pain spread to banking shares across Europe, as dealers said B&B's troubles showed even cut-price rights issues could fail amid a lukewarm appetite to invest more after a torrid year for the sector.

Royal Bank of Scotland and HBOS, which also plan bumper rights issues, put out statements to say they continued to trade in line with their previous guidance.

B&B also announced plans for an outside lifeline as U.S. private equity firm TPG Capital -- also known as Texas Pacific -- agreed to take a 23 percent stake in the bank in its first major UK bank investment. It will invest around 179 million pounds to become the single largest investor in Britain's biggest buy-to-let lender.

The private equity group's surprise swoop mirrors moves by strategic investors to shore up U.S. banks as financial institutions across the world have struggled with writedowns, the impact of the credit crunch and the prospect of recession.

TPG has positioned itself since the start of the crunch as a potential saviour for banks hit by subprime losses, striking a deal in April with U.S. bank Washington Mutual.