U.K. Officials in Talks on Bradford & Bingley Rescue

By Gonzalo Vina and Poppy Trowbridge

Sept. 27 (Bloomberg) -- The U.K. government is in talks with banking executives over a possible rescue of Bradford & Bingley Plc, the mortgage lender whose shares have tumbled 93 percent this year after late loan payments surged.

Treasury, Financial Services Authority and Bank of England officials are working ``closely'' with the company and executives of other banks, said a Treasury spokesman who asked not to be identified because of ministry policy. The options for Bradford & Bingley include a takeover by the government, acquisition by a rival bank or a break up and purchase by several buyers.

Bradford & Bingley, the U.K.'s largest lender to landlords, may join HBOS Plc and Northern Rock Plc among British banks that couldn't survive the worldwide credit crisis. In the U.S., regulators seized Washington Mutual Inc., America's biggest failed bank, this week and sold assets to J.P. Morgan Chase & Co.

``Nationalization may be more likely,'' said Guy de Blonay, a London-based fund manager at New Star Asset Management, who doesn't hold Bradford & Bingley stock. ``The government is having difficulty in finding any interest from potential buyers.''

The Treasury spokesman didn't identify the banks that are involved in the Bradford & Bingley negotiations.

Late Payments

Tony McGarahan, a Bradford & Bingley spokesman, confirmed that the lender was working with regulators ``to clarify the bank's future.''

``We can assure customers that their deposits are safe with Bradford & Bingley,'' he said, adding that a further statement will be made before financial markets re-open on Sept. 29.

Officials at Barclays Plc, Royal Bank of Scotland Group Plc and Lloyds TSB Group Plc., three of Britain's biggest banks, declined to comment on Bradford & Bingley.

The Bingley, northern England-based bank has 197 branches and almost 3,000 employees. It cut back on lending after funding from credit markets evaporated and late payments climbed.

Almost half of Bradford & Bingley's 42 billion pounds ($77 billion) of loans in the first half were to landlords, and about 17 percent to customers who certify their own income on application and typically have a higher level of default than standard borrowers.

Customers are more than three months late on almost 2.3 percent of the bank's mortgages. That compares with the U.K. average of 0.5 percent, according the Council of Mortgage Lenders.

Bradford & Bingley's market value has fallen to 256 million pounds, less than the 400 million pounds the bank raised in a share sale last month that was snubbed by almost three quarters of the bank's investors.

Next Northern Rock?

Fitch Ratings Service placed the bank's mortgage-backed bonds on negative watch Sept. 24, forcing the bank to call on Barclays Plc to act as a counterparty.

U.K. officials have tried for most of the year to prevent Bradford & Bingley from becoming the next Northern Rock, which ran out of funding and triggered the first bank run in more than a century in Britain. It had about 113 billion pounds of assets before it was forced to borrow about 24 billion pounds in emergency funds from the Bank of England.

The government waived antitrust rules on Sept. 18 to allow Lloyds TSB to acquire HBOS, the nation's largest mortgage lender, in a stock swap valued at about 12 billion pounds. HBOS CEO Andy Hornby said he agreed to the rescue after the company's shares fell 76 percent and he realized that the credit crisis won't be ending any time soon.

``You can't play brinksmanship with any entity that has depositors' money,'' said Mamoun Tazi, a London-based analyst at MF Global Securities Ltd. with a ``neutral'' rating on Bradford & Bingley. ``You have to find a solution before the problem becomes unmanageable.''

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.netPoppy Trowbridge in London at ptrowbridge@bloomberg.net; Brian Lysaght in London at blysaght@bloomberg.net