Treasury will nationalise B&B as talks with white knights continue

Daily Mail 28th September 2008

Treasury officials were on the threshold of taking ailing Bradford & Bingley into public ownership last night, prior to selling part of the business to Santander, HSBC, or Barclays.

With an official announcement promised for today, the BBC reported that the Treasury will nationalise B&B using the special legislation passed for Northern Rock, and then "almost immediately" sell it on.

Yet, B&B's £52m loan book will not be sold and will be nationalised on a long-term basis, according to the BBC. One option could be for the mortgages to be passed to the nationalised Northern Rock to manage. A source involved in the negotiations said: "What appears to have happened is that there is no way that they were going to get a private sale by the time the markets opened on Monday morning, but there was enough interest to keep talking."

The Treasury, along with the Financial Services Authority and the Bank of England, hope that they can either persuade a white knight to take on all of B&B's business or carve it up between the banks. B&B's chief executive, Richard Pym, is involved, but was said to be "extraneous to the talks but providing information to prospective buyers".

Santander, the Spanish bank which recently snapped up Alliance & Leicester, already owns the Abbey bank. One of the problems for B&B is that it is heavily exposed to the buy-to-let market, which is suffering the most from mortgage defaults.

A B&B spokesman said yesterday: "We are one of the best-capitalised banks in the business. Our strategy is to continue as an independent bank. Our savers are protected by the Government's guarantee provisions."

A Treasury spokesman said that B&B would not be allowed to fail: "The situation is fluid. Talks are ongoing but if a buyer cannot be secured then the Government is prepared to act. But a private-sector solution is preferable." B&B has, in effect, closed its doors to new business, running more like a closed life fund. With few people remortgaging, it is not interesting to a purchaser as its mortgage book is a dead weight. Buying the business would make sense only if the new owner could make big savings by merging mortgage books.

In another tumultuous period for the financial markets, traders on both sides of the Atlantic are looking ahead nervously to this week as they await the outcome of the $700bn (£380bn) bailout to create a "toxic bank" proposed by US Treasury Secretary Hank Paulson, which is still being brokered in Congress. Experts hope that Congress will sign the deal by tonight, ahead of the opening of the Asian markets. Providing confidence for the retail investor is Mr Paulson's biggest challenge after the collapse on Friday of Washington Mutual, the US's biggest savings company with $188bn in deposits. JPMorgan, which raised $10bn on Friday, has agreed to take over most of WaMu.

In another move, Mervyn King, the Governor of the Bank of England, was forced into new tactics in his efforts to kickstart banks into lending to each other again. The Bank will inject £40bn of longer-term funds into the market tomorrow, repayable on 15 January and has agreed to accept a wider range of assets as collateral, including mortgage securities. . The Bank also pumped in $30bn of US dollar-swaps as part of a coordinated effort by central banks worldwide to inject dollars into the overnight markets.