Treasury to nationalise B&B bank (UK)

[muriel_volestrangler]

Source: BBC

Officials from the Treasury and the Financial Services Authority (FSA) have been in talks with executives from the bank in a bid to secure its future.

BBC business editor Robert Peston says the Treasury will then speedily sell B&B's 200 branches and its savings business to a bank or number of banks.
...
B&B's £50bn of loans, including £41bn of home mortgages, will not be sold and will be nationalised on a long-term basis. The mortgages may be given to the nationalised Northern Rock to manage.

The bank experienced significant withdrawals of cash from its branches and online bank on Saturday amid customer concerns about its situation.

Read more: http://news.bbc.co.uk/1/hi/business/7640143.stm

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More:

Liberal Democrat treasury spokesman Vince Cable said the bank's problems were the result of a "collapsing housing bubble built on a toxic mix of buy-to-let speculation and self-certified mortgages".

Calling for a full, independent audit of B&B's accounts, Mr Cable said: "I suspect that a substantial proportion of the bank's assets are of poor quality because of loose self certification and because of the speculative element in buy to let.

"It's important that the taxpayer is given a full and honest statement of what it is that the Government has taken on, even recognising that there was no alternative to public ownership following the collapse of market confidence."

He added: "I will be writing to Alistair Darling with practical suggestions on how the Government can intervene decisively in housing, given that a vast amount of tax payers' money is now tied up with the mortgage lending business, the state of collapse in the house building industry and the inevitable tide of repossessions from the growing numbers of redundant employees unless action is taken through the courts to stem the flow."

http://www.independent.co.uk/news/business/news/bampb-nationalised-today--and-sold-944940.html

[muriel_volestrangler]

1. Santander 'likely' to acquire B&B

Spanish bank Santander is on the brink of taking over the £20bn savings business of troubled bank Bradford & Bingley, the BBC has learned.

Treasury officials and bankers are putting the final touches to a deal, says BBC business editor Robert Peston.

An announcement is expected early on Monday morning, which will also confirm that B&B's £50bn in mortgages and loans is being nationalised.

The giant Spanish bank owns Abbey and recently bought Alliance & Leicester.

http://news.bbc.co.uk/1/hi/business/7641055.stm

Comment from the BBC's business editor:

B&B: end of an era
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Second, the nationalisation will be seen as proof that the demutualisation of building societies - which began when Abbey National became a bank in 1989 - has been a colossal failure for both the former building societies and the British economy.

These specialist mortgage lenders were under such pressure to grow their profits, as public companies, that they became reckless adventurers in wholesale funding markets.
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Every single demutualised building society has either collapsed and had to be rescued or has been swallowed up by a bigger bank.
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The conversion of building societies into banks is an instance where deregulation and the liberalisation of an industry appears to have been an unmitigated disaster.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/bb_end_of_an_era.html

[fedsron2us]

2. Fortis Receives EU11.2 Billion Rescue From Benelux Governments

Sept. 28 (Bloomberg) -- Belgium, The Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis, Belgium's biggest financial-services firm, partially nationalizing the bank in a move to restore investor confidence.

Brussels and Amsterdam-based Fortis will also sell its stake in ABN Amro Holding NV's banking unit, Belgium's Prime Minister Yves Leterme said a press conference today.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHLJkQ0tCDEM&refer=home

Fortis large size in relation to the BeneLux Governments means this is a huge rescue operation and has potentially much wider implications than the demise of B&B which is largely confined to the UK retail banking and mortgage market.

[muriel_volestrangler]

3. B&B nationalisation is confirmed

Under the arrangement, the government will take control of the bank's £50bn in mortgages and loans. Shares in the company have been suspended.

B&B's £20bn savings business and branch network will be bought by rival Abbey, which is in turn owned by Spanish banking group Santander.

http://news.bbc.co.uk/1/hi/business/7641193.stm

Details:

# The remaining assets and liabilities of Bradford & Bingley - principally comprising its mortgage book, personal loan book, headquarters and relevant staff, and treasury assets and its wholesale liabilities - will be taken into public ownership through the transfer to the Treasury of the company's shares. HM Treasury and the Financial Services Compensation Scheme will recover payments in the wind-down of the remainder of Bradford & Bingley. To provide assurance to wholesale depositors and borrowers, and to preserve financial stability in this case and maximise proceeds in the wind-down, the Government has put in place guarantee arrangements for six months to safeguard certain wholesale borrowings and deposits with Bradford & Bingley. It is the Government's current intention to seek state aid approval from the European Commission to extend these guarantee arrangements as part of the restructuring of Bradford & Bingley.
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# Under the Transfer Order, the FSCS has paid out approximately £14bn to enable retail deposits held in Bradford & Bingley and covered by the FSCS to be transferred to Abbey. The Treasury has made a payment to Abbey for retail deposit amounts not covered by the FSCS, amounting to approximately £4bn, to be transferred to Abbey. In return, the FSCS and the Treasury have acquired rights in respects of the proceeds of the wind-down and realisation of the assets of the remaining business of Bradford & Bingley in public ownership.

# The FSCS has financed its payout through a short-term loan from the Bank of England, which will be replaced with a loan from the Government after a short period of time. The repayment terms of the loan for the first three years provide for repayment of interest at a rate of one-year LIBOR plus 30 basis points, plus the repayment of any recoverables accruing to the FSCS from the wind-down of the business against the principal outstanding. The first payment, for interest from the period from now until end-March 2009, will take place at end-September 2009 and subsequent payments will be made annually thereafter. It is currently estimated that the first payment required in September 2009 by the FSCS under the loan will be approximately £450 million. After the first three years, it is intended that the loan will be refinanced by the Treasury, repayments of the principal to be made over a period of years in the light of prevailing market conditions.
..
# The Banking (Special Provisions) Act 2008 also provides for a compensation Order to be made. This order - relating to compensation for shareholders and others whose rights may have been affected by the transfer into public ownership - will be laid in due course.

http://news.bbc.co.uk/1/hi/business/7641273.stm

That seems to mean:

The FSCS, which is funded by the banking industry, is technically responsible for guaranteeing the deposits in B&B, but it doesn't have enough money to do that at the moment. So the government is lending it money so that it can; the government gets the dodgy loans in return, and recovers the money from them, if it can. Th numbers imply the money can be recovered, but it will take years to do so. The shareholders have been told their shares are currently worthless; but might end up getting something at some time, if they're lucky.

The BBC's business editor calls it 'good deal for taxpayers, and that the risk was "quite close to nil"'; which seems pretty optimistic.

Oh, and the news from one week ago:

B&B 'confident' of staying independent

Bradford & Bingley, the mortgage bank whose credit rating was last week downgraded to just a single notch above junk-bond status, yesterday claimed it was confident that it could remain independent despite its vulnerabilities in the current financial climate.
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However, B&B insisted that it was not currently engaged in talks with anyone about a takeover or merger.

"We are not aware of anything in connection with these banks," a spokesman said. "Our funding foundations are solid and well capitalised."

A spokesman for the FSA also refused to comment on the suggestion that the regulator was brokering the sale of B&B. Privately, however, senior officials at the watchdog argue that they would face huge criticism were B&B to run into trouble only for it to emerge that the FSA had not thought about potential solutions and acted upon them.

http://www.independent.co.uk/news/business/news/bb-confident-of-staying-independent-937698.html

[T_i_B]

4. And look what's happening to the Pound!

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3101817/Financial-crisis-pound-falls-most-in-15-years-in-wake-of-BandB-nationalisation.html

Within hours of trading opening in London, sterling was down almost four cents against the greenback to $1.8036 - the biggest intraday decline in 15 years.

B&B's mortgage book will now join Northern Rock under government ownership in a move analysts reckon will saddle each UK taxpayer with £2,750 exposure to the market. City economists now expect the Bank of England to start cutting interest rates in November in an attempt to stave off a deep and prolonged recession in the UK.

Sentiment toward the pound darkened after the Bank of England published surprisingly poor mortgage lending figures. Net lending plunged to £143m in August, down from £2.9bn in July. This was the lowest level since the series began more than 15 years ago and was substantially below the £4.7bn monthly average for the previous six months.

"The mortgage market in effect ceased to exist in August," said Steve Barrow, currency strategist at Standard Bank.