Third British bank set to fall as B&B is nationalised news
29 September 2008

Rod Kent Bradford and Bingley has become the third British bank to fall after Northern Rock (See: UK decides to nationalise ailing bank Northern Rock)  was nationalised in February and HBOS sold itself to Lloyds TSB Group Lloyds takes over HBOS in $21.7 billion deal with British PM Brown's support in September as the bank's share price fell 93 per cent this year and accumulated 50 billion losses in bad mortgage loans with Britain's big banks refusing to get into the rescue act.

Another European bank, the Belgian-Dutch financial group Fortis, which was on the verge of falling Fortis to sell assets worth $14.6 billion as shares plunge: changes CEO, as Dutch and Belgian authorities held talks this weekend to chalk out a plan aimed at keeping the sinking banking and insurance group afloat with an 11.2 billion ($16.3 billion) rescue from the Belgium and the Netherlands government.

Richard Pym Santander, the Spanish banking giant has acquired Bradford & Bingley's 200-branch network and 21 billion deposits for 150 million, thus leaving the Treasury to nationalise the remaining 50 billion bad debts. The government will now merge the bank with the nationalised Northern Rock.

The British Treasury, Financial Services Authority and the Bank of England held tripartite talks over the weekend to avoid a rerun of the Northern Rock fiasco by having an immediate fire sale, to sell off B&B's assets to one or more banks.

The urgency to resolve the future of B&B by the weekend has escalated because of fears that there could be a run on the bank as it opens its doors on Monday. B&B has lost 800 million in deposits during June and July.

Treasury chief secretary Yvette Cooper told BBC television that finance minister Alistair Darling would make a statement confirming the nationalisation, barring any last-minute rescue before the stock markets opens on Monday morning.

Bradford & Bingley, which specialises in buy-to-let mortgages and self-certification loans, is Britain's biggest lender to landlords with 2.5 million customers and 1 million shareholders.
"We can confirm that all of Bradfod & Bingley's savings business including its retail branches have been transferred to Abbey," the bank said on its website.

"The rest of the business, including the mortgage operation and headquarters, has been taken into public ownership by the government," it added.

Abbey is part of the Santander Group that acquired part of ABN Amro in a Royal Bank of Scotland-led consortiumm, that also comprised the distressed Fortis.

With a desire to grow rapidly, B&B entered untapped areas of the mortgage market and made a place for itself in lending to buy-to-let landlords and to borrowers who were not able to supply proof of their earnings. These self-certified mortgages were highly risky started making losses in greater numbers than ordinary mortgages.

It also depended on the city's wholesale markets for funds for their growth and this growth tumbled, as credit started drying up. B&B had also invested in the high return-high loss of the US housing mortgages.

The government will now take over the bad debts in a bid to protect depositors and savers at B&B but shareholders as usual, will be wiped off.

Over the weekend the government held meetings with HSBC, Royal Bank of Scotland and the Spanish bank-Santander who all refused to rescue Bradford & Bingley or acquire it, because of its 41 billion in mortgages, which is 3.4 per cent of all UK mortgages, and most of them are the higher risk buy-to-let mortgages that are likely to have a higher probability of defaulting.

If the government nationalises the bank then it will create high resentment with institutional investors like Standard Life, Legal & General, M&G and Insight, who had sub-underwritten B&B's 400 million rights issue by 150 million at the request of the government.

The opposition however is raising concerns at the government taking ownership of the bank by putting a huge risk of taxpayer's money.

The bank last month revealed net losses of 17.2 million for the first half of 2008 even though it has retail savings deposits of 21 billion and total assets of 52 billion but its share price has fallen 93 per cent in the last year when shares which were worth 3 fell to a low of 16p on Friday.

It had announced on Thursday, that it was cutting 370 jobs at its mortgage processing centre near London, in an effort to save 15 million.


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Third British bank set to fall as B&B is nationalised