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October 2, 2008updated 19 Aug 2016 10:07am

IT to blame for Bradford & Bingley woes?

Just before the UK’s Bradford & Bingley Building Society launched a £400m rights issue in the first half of this year in the hope of shoring up its finances, it had said that trading was roughly in line with its expectations and that it would not

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Just before the UK’s Bradford & Bingley Building Society launched a £400m rights issue in the first half of this year in the hope of shoring up its finances, it had said that trading was roughly in line with its expectations and that it would not need to do a rights issue.

Then on May 14 it announced it was doing a rights issue after all, offering existing shareholders the opportunity to buy 19 new shares for every 25 they already held, at a cost of 55 pence per share.

But in an almost unprecedented announcement half way through the rights issue process – just nine days after it began — Bradford & Bingley changed its mind again, this time saying that investors could only buy 16 shares for each 25 they held, at a far costlier 82 pence per share.

The reason for the change? The company said that trading conditions had deteriorated very quickly, and that it would make an £8m loss in the first four months of the year, helping to send its share price tumbling. But what has the building society’s IT got to do with all of this? …[click Continue Reading for more on this entry]…

How could the company have come so unstuck? How could it have mispriced the rights issue so badly, and only become aware of how bad business was so late? According to the Financial Times, at least part of the problem lies in B&B’s “hopelessly antiquated information technology”.

b&b.jpg

Bradford & Bingley’s ‘bowler hats’ logo.

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On the assumption that no financial institution would tell a bare-faced lie to the major institutions it was hoping to raise funds from – under the nose of the Financial Services Authority – the only explanation is that B&B itself did not know that things had already taken a turn for the worse.

It seems that outdated financial information presented an inaccurate picture of the financial health of the bank, and for that out-of-date IT infrastructure, and/or inadequate business intelligence tools, are partly to blame.

So the next time that Nicholas Carr or anyone else tells you that “IT doesn’t matter”, you might want to point them to the latest news about Bradford & Bingley and the trouble their outdated IT systems led to: bowler hats notwithstanding.

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