U.K. Treasury to Protect Bradford & Bingley Deposits

By Poppy Trowbridge and Jon Menon

Sept. 28 (Bloomberg) -- The U.K. government will step in to protect Bradford & Bingley Plc depositors, stopping short of confirming reports that the bank will be nationalized, Treasury minister Yvette Cooper said.

``Financial stability has got to be protected, but so have ordinary savers,'' Cooper said on British Broadcasting Corp. television today. ``There are limits to what I can say, but there is a full range of work that has been under way.''

Chancellor of the Exchequer Alistair Darling will make a statement before 8 a.m. tomorrow outlining the government's plan, which the BBC said would include some form of nationalization. Ministers are working on other options including a partial government takeover, acquisition by a rival bank or a break up and purchase of assets by several buyers.

Bradford & Bingley, the nation's biggest lender to landlords, is the third major British bank to run into trouble since credit markets seized up around the globe last year. Northern Rock Plc was nationalized in February and HBOS Plc sold itself to Lloyds TSB Bank Plc last week.

Talk of another government-led bank bailout reopened a rift between U.K. political parties, with the Conservatives charging that Prime Minister Gordon Brown has held up regulatory reform and Labour ministers saying the opposition is playing politics.

Conservative View

``We've got a regulatory system set up by our prime minister that seems to have completely failed to spot that something was wrong, to get something done about it, and we've got a bunch of politicians running the country who've had a year to pass this legislation, which we've said repeatedly we will support,'' Conservative leader David Cameron told the BBC.

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.

After talks with President George W. Bush last week, Brown and Darling ``have worked right through this weekend to sort out the problems we're facing,'' Geoffrey Hoon, a Cabinet minister, told Sky News. ``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.

`Inevitable' Move

``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.'' He declined to be identified by name, in accordance with departmental policy.

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.''

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.''

Landlords

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 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.

Political Rift

Cameron, 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.''

Later, his finance spokesman suggested the opposition was resisting the idea of nationalization.

``People will wonder why on earth the British taxpayer is being asked by Gordon Brown to bear the full risk,'' George Osborne, the Conservative lawmaker who speaks on finance, told Sky News.

Vince Cable, treasury spokesman for the Liberal Democrats, told Sky that nationalization was the ``least worst option.''

The Tories' lead over Labour has been halved during the past month, according to an opinion poll published today. The BPIX Ltd. survey for the London-based Sunday Telegraph newspaper gives the Conservatives a 12-point lead over Labour, down from a 23 percent advantage in August.

Housing Slump

Bradford & Bingley has been hurt by the worst British housing slump in 30 years, with house prices falling for a 10th month in August. U.K. mortgage approvals fell to the lowest level in at least a decade last month, 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.

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 reporters on this story: Jon Menon in London at jmenon1@bloomberg.net; Poppy Trowbridge in London at ptrowbridge@bloomberg.net