U.K. to Protect Bradford & Bingley; BBC Reports Nationalization

Sept. 28 (Bloomberg) — The U.K. government will act to protect Bradford & Bingley Plc customers, Chief Whip Geoff Hoon said after the British Broadcasting Corp. reported the country’s biggest lender to landlords will be taken over by the state.

Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling “have worked right through this weekend to sort out the problems we’re facing,” Hoon, a parliamentary officer, told Sky News today. “I’m confident that in due course there will be a statement from the Treasury about Bradford & Bingley. We will act to ensure that the interests of depositors are properly protected.”

The government will take control of Bradford & Bingley, whose shares have tumbled 93 percent this year, the BBC reported on its Web site, without saying where it got the information. The Treasury and Financial Services Authority will negotiate with banks interested in buying parts of the Bingley, England-based bank, the BBC said. Possible buyers include Banco Santander SA, HSBC Holdings Plc and Barclays Plc, the report said.

“It was inevitable that nationalization has been decided as the risk has been too great,” said Howard Wheeldon, a senior strategist at BGC Partners in London. “It’s a very sensible solution.”

A spokesman for the U.K. Treasury said discussions about Bradford & Bingley are “ongoing.” An announcement about the company’s future will be made before markets open tomorrow, he said. He declined to be identified by name, in accordance with departmental policy

Northern Rock, HBOS

A voicemail message left on the cellphone of Bradford & Bingley spokesman Tony McGarahan today wasn’t immediately answered. Late yesterday, he said the company was working with regulators “to clarify the bank’s future.”

The nationalization of Britain’s biggest lender to landlords would follow Northern Rock Plc’s in February and a government- assisted takeover of HBOS Plc, as banks struggle with funding amid the seizure of credit markets. U.S. lawmakers today said they made a breakthrough in talks on a $700 billion plan to buy assets from financial companies affected by a record number of home foreclosures, in an effort to revive credit markets.

Nationalization is “a necessary move to maintain stability,” said Mamoun Tazi, an analyst at MF Global Securities Ltd in London. “Bradford & Bingley is unable to fund itself in the current environment because there’s not enough money being lent between banks.”


Almost half of Bradford & Bingley’s 42 billion pounds ($77 billion) of loans in the first half were to landlords, bringing its share of the U.K. buy-to-let market to 19 percent. About 17 percent of the bank’s loans go to customers who certify their own income on application and typically have a higher level of default than standard borrowers. Bad debts in the first half jumped to 74.6 million pounds, from 5.3 million pounds last year.

Bradford & Bingley’s shares fell as the credit crunch made it impossible to find funds for new loans and day-to-day operation.

Deposits at the bank amount to only slightly more than half of loans outstanding, which means it depends on capital markets for about half of its financing. Bradford & Bingley was forced to curtail new business when those markets dried up and the cost of inter-bank borrowing soared causing banks to hoard cash following the collapse of the U.S. subprime mortgage-market.

David Cameron, leader of the opposition Conservatives, interviewed on the BBC’s Andrew Marr television show today, refused to be drawn on whether his party would oppose nationalization, as it did earlier this year in the case of Northern Rock. “We will look at it like a responsible opposition,” he said. “What matters most of all is safeguarding the depositors.”

Housing Slump

“People will wonder why on earth the British taxpayer is being asked by Gordon Brown to bear the full risk,” Conservative Treasury spokesman George Osborne told Sky News. Vince Cable, treasury spokesman of the Liberal Democrats, told Sky that nationalization was the “least worst option.”

Bradford & Bingley has been hurt by the worst British housing slump in 30 years, which has seen house prices decline for a fourth month in September. U.K. mortgage approvals fell to the lowest level in at least a decade in August, according to the British Bankers’ Association.

The sliding housing market has pushed up Bradford & Bingley’s late mortgage payments to more than 2 percent of all loans. That compares with the U.K. average of 0.5 percent, according to the Council of Mortgage Lenders.

Share Price

The lender was formed in 1964 as a result of the merger of the Bradford Equitable Building Society and the Bingley Building Society, both of which were established in 1851. It first sold shares on the London Stock Exchange in December 2000.

Bradford & Bingley, worth 3.2 billion pounds in March 2006, closed at 20 pence on Sept. 26 in London trading, valuing the bank at 256 million pounds. That’s less than half the price it asked shareholder to pay for the 828 million shares it sold at 55 pence apiece in an August rights offering that was snubbed by almost three quarters of its investors.

The U.K. government took control of Newcastle-based lender Northern Rock after it was bailed out by the central bank last September. HBOS agreed to be bought by Lloyds TSB Group Plc for 11 billion pounds on Sept. 17, assisted by a government waiver of competition rules.

In the U.S., officials seized Washington Mutual Inc., the country’s biggest failed bank, and sold its assets and branches on Sept. 26 to New York-based JPMorgan Chase & Co.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.netPoppy Trowbridge in London at ptrowbridge@bloomberg.net

Last Updated: September 28, 2008 08:07 EDT
By Poppy Trowbridge and Jon Menon

Source: Bloomberg

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