Richard Pym, Bradford & Bingley's new chief executive, was formally confirmed in the job on a £3 million package yesterday and immediately vowed to grapple with an adverse contract that obliges the bank to buy flawed mortgages from GMAC.

The promise came as B&B's £455 million capital-raising was labelled a partial flop, with shareholders taking up their rights in respect of only 27.8 per cent of the new shares.

The remaining 72.2 per cent were left with Citigroup and UBS, the underwriters and the sub-underwriters, which will be obliged to produce the cash on Friday unless they can find subscribers at the rights price of 55p a share.

Under a rescue plan orchestrated by the Financial Services Authority (FSA) last month, six of Britain's biggest high street banks, together with four existing institutional shareholders, rallied round to sub-underwrite the accident-prone capital-raising.

A catalogue of setbacks at B&B, including the withdrawal of a rescue bid from TPG, the private equity group, had risked triggering a Northern Rock-style panic, persuading the FSA to act. Although the take-up rate in the rights issue was low, B&B achieved more support from existing shareholders than either HBOS in its £4 billion rights issue or Barclays in its £4.5billion placing and open offer.

Mr Pym defended the take-up rate, arguing that while only 10 per cent of B&B's 950,000 small investors had taken up their rights, 40 per cent of institutions had supported it. “That's quite a good result in these markets. I'm optimistic I can add value here,” Mr Pym, who ran Alliance & Leicester until last July, said. “We have a strong capital cushion and the core lending book is in a good position.”

One of the first priorities, he said, would be to tackle the contract with GMAC, which obliges B&B to buy £350 million worth of British mortgages each quarter from the American finance group until the end of 2009.

Mr Pym said that arrears on the self-certified mortgages bought from GMAC were higher than on those originated by B&B, but he added there was no guarantee that he could extricate the bank from the deal.

As well as a huge book of buy-to-let loans, B&B has also been a leading lender of self-cert mortgages, sometimes dubbed “liars' loans” because there are no checks to confirm the claimed income of the borrower.

B&B said yesterday that there had been no material change in its trading or outlook since its trading statement on June 2. It is due to publish half-year results on Friday week. The shares drifted p lower to 54p, just below the 55p issue price. Traders said that worries about the overhang of unwanted shares were offset by the view that short-sellers would have to buy shares to close out their positions.

Mr Pym will be paid a base £750,000 a year for at least two years, plus a guaranteed cash bonus of £375,000 for the second half of 2008 and a similar amount in the first half of 2009. He will also receive deferred shares equal to the cash bonus plus £1.5 million of share options at a 55p strike price.

Mr Pym, 58, headed Alliance & Leicester (A&L) for five years. He retired from A&L only weeks before the credit crunch hit, forcing it finally into the arms of Banco Santander, of Spain. “I missed all the fun,” he lamented yesterday.

Mr Pym was lined up as a potential chief executive of Northern Rock by JC Flowers, the private equity group, when it was considering a bid for the Newcastle-based lender before it was nationalised.

Taking issue

Amount raised by bank rights issues (success rate in brackets)

Royal Bank of Scotland
£12 billion (95 per cent)

Barclays*
£4.5 billion (19 per cent)

HBOS
£4 billion (8.3 per cent)

Bradford & Bingley
£455 million (27.8 per cent)

* placing and open offer

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