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B&B's rising arrears

Robert Peston | 08:59 UK time, Monday, 2 June 2008

Bradford & Bingley's shares have dropped sharply again this morning following its warning of worsening arrears on the buy-to-let mortgages it provides.

Bradford & BingleyIt blames the problems experienced by its borrowers on worsening economic conditions which have led to house price deflation.

The value of its buy-to-let mortgages where borrowers are either more than three months behind with payments or the properties have been repossessed has jumped from £828m at 31 December to £1.1bn at 30 April.

Other bad news is that the profit margin on its lending remains under pressure - because, like all banks, the cost of raising money for Bradford & Bingley remains high.

And it has suffered further charges on its so-called structured finance portfolio, or its foolish investments linked to US subprime.

Putting this altogether means that for the first four months of 2008 Bradford & Bingley made a loss of £8m - far worse than the City had been expecting.

But the City watchdog, the Financial Services Authority, believes the pain will be restricted to shareholders - and there is nothing to alarm those with savings in the bank.

Even for shareholders there is some good news - with the announcement that the renowned private equity investor, Texas Pacific Group, is paying £179m for a 23% stake in Bradford & Bingley.

Although TPG is only paying 55p per share for this stake - around 90% below Bradford & Bingley's share price in 2006, the housing market's year of unsustainable bliss.

UPDATE 09:26: Other British banks are jumpy this morning, having seen B&B slip on its banana skin.

Royal Bank, which hopes to avoid the humiliation of seeing its rights-issue shares fall into the hands of underwriters, has put out a statement that its UK buy-to-let mortgages represent only 1% of its UK loan portfolio and that there has been no deterioration in its trading performance since its last statement on April 22.

It is shouting at investors that they shouldn't assume that B&B's difficulties are a harbinger of horrors at RBS - although RBS's share price has this morning slipped just a little bit nearer that fateful rights price.

Comments

  • Comment number 1.

    Trying to start another run on a bank?

  • Comment number 2.

    Robert: Ignore 1 above, just tell it like it is.

  • Comment number 3.

    How odd. I thought their arrears were 1.35% about the same as all other Mortgages.

    Perhaps he should check his figures, before trying to start Panics !

    By the way B and B is owned by our Pension Funds who of course are losing out with the cheap Share Sales.

    Oh well, smaller Pensions for us all!

  • Comment number 4.

    I think that the Land Registry figures showing a 0.4% drop in prices (not as much as Nationwide) are very interesting. I think that the drop in house prices have yet to hit properly. Here's why. We are at the stage at the moment where house price completions that started around 4 months or so ago are actually completing. This completion time has taken a lot longer than before because the market is jittery and gazundering abounds. However, in the main, the completion deals have generally been made at January 2008 prices which you could call pre-slump.
    You see where I am going on this. I would estimate that the Land Registry statistics on house price completions will show a much greater decline in August/September when the collapse in the mortgage market really resonates. The prevailing market view of paying a fair chunk less than a few months ago will therefore hit the Land Registry completion stats then.
    So, we haven't really seen the house price slump yet - we can feel it but I predict in August/September time, it will really manifest itself.
    Happy house buying

  • Comment number 5.

    Robert,

    I second #2.

    Ignore the "la-la-la, it's not real" fingers in ears, head in sand fraternity. I've been following this blog and it's very clear to me that this fraternity have a tenuous grasp of the situation and it's importance.

    Keep on telling us what's going on. You're doing a very valuable job. I for one appreciate your insight.

  • Comment number 6.

    I am not at all sure of your figures, their relative sector positioning, and the impact they may have on this organisation. They should sort it out before they get too far on the property price downside.

    A BTL property has a mortgage valuation based on rental income - so with rental prices going up, I would say that 90 days arrears on non-FSA regulated BTL mortgage should mean repo and resale opportunity to someone who can run a property investment and/or management business, instead of the fools who funded deopists on credit-cards for city centre new builds.

    I do however think you play a bit fast and loose with snippets of finacial deals in progress, but not yet completed, that seem sensational enough to bolster your "journalist in the know" reputation.

    Will you only be happy when you talk the individual savers into another partly or mis-informed run on a bank that has dire consequences for the individual investor?

  • Comment number 7.

    I wonder if you can make a connection with the RBS and Barclays situation and New Labour. Maybe you could start another crisis.


    Are Barclays and RBS based in labour heartlands? Will you get lots of sycophantic fan mail if you start another crisis?

    The BBC needs reporting that is impartial. Are you up to the job?

  • Comment number 8.

    The comment about delayed price changes in the Land Registry figures is of course correct. In parallel with bad late summer Land Registry figures it also seems likely that employment will begin to fall. If that happens then the mortgage defaults will begin to increase even more significantly.

    I am afraid we are in for a very difficult Autumn.

  • Comment number 9.

    Reading a book at the moment "The dollar crisis" by Richard Duncan it really cuts through the wonderland economics that we've experienced the last 15 years. It was written in 2002 but his predictions regarding the credit bubble, US housing bust, dollar fall, bank bailouts were spot on, next the drawing back of US consumer spending.. frightening stuff.

  • Comment number 10.

    Also like to mention that HBOS share price is now significantly lower than when the shorters were accused of rigging the share price.

  • Comment number 11.

    Here's a thought for you all - why did GB sell off large amounts of the gold reserve a couple of years back before the credit crunch hit? - because the government is broke. They are showing the classic signs with the selling off of assets (British Energy, Gold reserves, Post office etc) and trying to reign in the spending (denying public sector pay rises, reducing spending on defense and policing - despite their claims to the contrary ).
    We face a future of either tax hikes or huge cuts in spending, I suspect the government will change at the next election and the Tories will start reducing the spending when they see how bad things have got. All that stolen gold from Africa and India wasn't going to last forever, what we need is a new colonisation of a resource rich state - oh yes, what about Iraq, and then perhaps Iran....
    It's not rocket science, otherwise we wouldn't get away with putting muppets in power. The sad bit is that there are alternatives to this type of policy but the people involved are either too obtuse, or too afraid of loosing popularity (i.e. elections) to even look for them. Every time I listen to an MP (from any quarter) it reminds me of how un-educated Britain has become and how easy it is to be 'qualified' - like Jeffery Archer and his 'bought online' degree.
    The twisted lies across the world will be the downfall of the human race.

  • Comment number 12.

    rjmghome@1 wrote:

    "Trying to start a run on a bank?"

    No the best time to start a run on a bank is late friday night just before the popular jonathan ross show giving the whole weekend for southerners to panic.

    The best place is in a labour heartland. Somewhere up North like Newcastle upon Tyne. It guarantees lots of sycophantic support from the conservative bloggers.

  • Comment number 13.

    One more interesting point. Last year these banks made £40 billion profits and the chancellor got a good wack of revenue.

    Now as the chancellor hasn't got any cash and borrowing to keep people happy. In case of fall in tax revenues what will he do??

    Enjoy..

  • Comment number 14.

    If banks can make 10-15 times loan of their market capitalisation.

    BandB current Market value is £778.26 million based on the sale of 23% for £179 million.

    So at max it can give a mortgage for around £10 billion (15 times capital)

    But they have 20% of £120 billion Buy To Let market = £24 billion plus a share in residential and commercial property as well. Add business and personal loans.

    So can we expect a further £20-30 billion gap in the mortgage market as BandB will have to scale back.

    In time they could be wanting to get rid of mortgages (like Northern Rock) and only offer mortgages at higher rates.

    Enjoy..


  • Comment number 15.

    Just one thing...Bradford and Bingley is not the 8th largest bank. According to Bank League Tables www.bankleaguetables.blogspot.com it is the 14th largest.

  • Comment number 16.

    Useful article, I didn't realise thestake was 23% at 55p per share. That will tell every other bank what their value might be.

  • Comment number 17.

    RE: comment 11 - I was always a bit bewildered why he waited until Gold Prices were at a low ebb before selling!

    I do feel, however, that there is (and maybe it is unwitting) an agenda in the Beeb to talk us into a recession. So much hinges on peoples' expectations in the market and this constant percussive message of 'financial meltdown' and 'recession' does not help.

    Robert has a fine line to tread between reporting the news, commenting on the news and maybe going just a little further. I think that he and his colleagues go just a little too far.

  • Comment number 18.

    12 dhwilkinson:

    Are you still peddling that tired old conspiracy theory?

  • Comment number 19.

    1: Anyone who has been following this story will not have needed Robert Peston or anyone else to have worked out they needed to withdraw all their money weeks and weeks ago!

    NR were just the first of many I fear. We live in interesting times.

  • Comment number 20.

    RE: 17

    BBC talking us into a recession eh?
    Nothing to do with the blind, stupid, greedy and recklessly arrogant decisions being made in the financial sector for the past decade then? Nothing to do with the hundreds of billions they lost and looted?

    Banks screw up, we go into recession. That's generally what happens.

    No point blaming Auntie Beeb for blowing the whistle.

  • Comment number 21.

    doctorgloom wrote:


    "12 dhwilkinson:

    Are you still peddling that tired old conspiracy theory?"

    Yes, just this once. Just because I'm paranoid doesn't mean they aren't out to get us. To me the timing of the breaking news was too perfect, the level of coverage was over the top and sometimes bordering on the deceitful.(3000gbp per taxpayer). Now we have all of these other banks running into trouble. Contrast their level of coverage with the Labour heartland Northern Rock. I think it is right to question even the BBC when you feel something is wrong. but I wont get carried away like i did when it happened.

  • Comment number 22.

    I'm amused that some here are trying to blame Mr Peston for the collapse of Northern Rock, and of bringing about recession.

    Whilst I'm sure Mr Peston is flattered by the suggestion that his words alone are enough to lead the economy from boom to bust its all rather silly.

    Perhaps rather than sinking billions of pounds into failing banks to try to avert an embarrassing collapse of the New Labour economy, Gordon Brown should use perhaps a few million to bribe the all-powerful Mr Peston to say positive things?

    I'm sure within minutes of reading his authoritative words the banks would resume lending money they didn't have to people who couldn't repay it again, people would start spending money they didn't have, house prices could reach new absurd multiples of average earning, consumers could scale new highs of debt and in general everything would look nice and healthy again like it did before Mr Peston opened his big mouth.

  • Comment number 23.

    Our poor old Pension Funds lose out again.

    Over 70% of B and B is owned by our Pension Funds.

    With the cheap Share Sale the Pension Funds stakes become worth far less.

    TPG are wrong to believe that there could be a Takeover bid for B and B?

    Why should another high street Bank bother trying to takeover B and B when they have their own troubles?

    Of course TPG might know something I don't, but wouldn't that be insider trading ?

    And how many hedgefunds have used Stock lending to sell down the Price of B and B to buy Shares later cheaper when the regular Investors have been scared away?

    There should be a criminal investigation.

    After all Fraud is crime isn't it?




  • Comment number 24.

    Money supply or the lack of it and the movement of money from one overpriced 'safe haven' (property in this case) to another oil and commodities.

    Huge sums have been shifted from property by means of synthetic financial instruments. Much of these artificially created 'gambling' funds now reside in both commodities and private equity managements so it is fitting that they should return the favour and prop up the source of their funds. If is is 'wise' of them is another question?

    It has always been the case that the economy, and all its sectors, behave like a cartoon character running off a cliff - until the character becomes aware that there is no ground beneath its feet it will not fall. However there is a good argument proposed by #1 above and much derided lower down this blog that simply carrying on on a day-to-day basis as though nothing has happened can be a good thing.

    It certainly is a 'good thing' for those who know and can act upon the knowledge. It is, as always, knowing 'when' it will happen that maximizes your gains - if anyone could 'know' when the cartoon character will fall he/she would own the World!

  • Comment number 25.

    21 dhwilkinson:

    Look, it's madness to imagine that Robert, the BBC and its staff are somehow manipulating the news to destabilise a bank. For goodness sake, Northern Rock expanded on the back of cheap money and found itself vulnerable to changing conditions in the money markets. Robert and the BBC didn't start this off, they simply reported it. And as for this 'classist' interpretation of Northern Rock's fall into the public sector, it's rubbish. Northern Rock's ambitions were far wider than the north, they became a national player. You might see them as a 'northern champion', reflecting good old working class 'northernness'(whatever that is) but I doubt they saw themselves as such.

  • Comment number 26.

    re doctor_gloom@25

    The issue I have is with the 'Run on the bank'.
    and how it seems to have been created. A well timed leek leading to an overexcited News provider reporting a request for emergency funding. Just before a popular 18million gbp for 3years chat show. In time for the weekend so they had plenty of time to panic.
    The most ideal thing to attack former chancellor Gordon Brown on is the economy. So this run seems a little bit convenient to me thats all.
    I don't want to go on about it like I said. I live in the city of Newcastle and didn't like the idea of political and media games. loosing jobs totaling 3000 and as you know being so knowledgable about business a knock on effect in other local employers and a loss of reputation of the area with everyone talking about an incompetent Newcastle bank. Now everyone is a financial expert.

  • Comment number 27.

    RE 26

    Blaming everyone and anyone other than the bank itself, for a run, is the stupidest thing I've ever heard.

    It would be almost impossible for any bank to have a run, if they actually kept a significantly larger amount of our money in reserve, rather then the current 4 to 7 pence for every pound deposited, they seem to be holding these days.

    Imagine that, banks doing what they've conned the public into believing they do, looking after your money. It would be a first.

    Not these heroes, they'd rather spend their time and all your cash deposits, being conned into buying dodgy mortgage debts from the states, and loaning money that doesn't exist to people who cannot afford to repay anyway.

    God bless em. In a decent culture, they'd be imprisoned for fraud. In ours, they get Knighthoods and retirement homes in tax havens.

  • Comment number 28.

    Given that the credit/housing-oriented boom is now "maxed out", perhaps it is rational to target the pension funds next as one of the few remaining sources of "real wealth"?

    I predict a slow, painful deterioration in the real value of our pensions...for those prudent enough to even have one.

    The current economic climate is eroding savings and discouraging prudence. The principal of "retirement" is destined to be an unobtainable dream for the next generation in 20-30 years time. We are all gonna have to work until we die. Simple as that.

    We'd better all love our jobs.

  • Comment number 29.

    maroon3@27

    Re 26:
    "Blaming everyone and anyone other than the bank itself, for a run, is the stupidest thing I've ever heard...."

    I wanted to leave this subject alone with one message that could have safely been ignored@12. but everybody is a financial expert these days. especially if it supports their prejudice's.

    The way I understood it at the time. The Northern Rock wanted to take advantage of the lender of last resort facility. because of a problem borrowing money because of the credit crunch. I believe this facility is available and may have been used by other banks in Europe in the United States without this adverse publicity. This was leaked to the BBC who announced Northern rock seeks emergency funding! On a friday night, a weekend.

    It is the duty of a business to maximize profits but the Northern Rock was taking too many risks. I just think that it needn't have led to a run on the bank media circus. Which no other bank having the same problem has had to suffer. Perhaps the amount now borrowed for the Rock could have been lower. If this had not hit the news in this way.

    I might be wrong but I do not claim to be a financial expert like some.

  • Comment number 30.

    No 27 Maroon3 you're so right.
    What a completely useless lot of bank directors we currently have.
    Most people with any prudence could have warned this lot about their so-called "boom" of the last 7 years as being nothing more than a debt blowout.
    But all these "experts" would never listen to the average Jo.
    Ans still they draw their huge salaries and bonuses.
    In effect, they have looted our economy.

  • Comment number 31.

    No 29 , you are not alone in your belief or suspicion that the leaaking of the information about Northern Rock seems to have been arranged for maximum negative impact.

    Quite frankly anyone who believes the media's effect was accidental really is looking thro rose tinted glasses.

    There are those in the media with an axe to grind.

    And there are plenty of businessmen out there willing to make a quick buck at anyone's expense, after all they are so rich they don't have to worry about Pensions!

    The Revenue ought to do an audit of some of the journalists involved as well........


    Cynical old me.

  • Comment number 32.

    Just to correct a minor factual error - the BBC reported Northern Rock at 8pm on Thursday (not Friday) on BBC news 24 followed by its various other outlets. Its "leak" anticipated a planned 7am Friday announcement to the London Stock Exchange (that had itself been brought forward from monday)

    A number of witnesses to the Treasury Select Committee enquiry believed that this was significant in causing the run on the bank, although the TSC argued that the Directors should have anticipated the leak and announced earlier.

    Source: Treasury Select Committee Report.

  • Comment number 33.

    Well done Robert ,
    Another incisive report. However , to me it does not really matter if this scenario is not the same as Northern Rock - the result is the same. Bradford and Bingley is now a basket case , forced to go cap in hand to anyone who will lend it money. Texas Pacific have got it cheap compared to the 2006 value and existing shareholders will probably have to sell out to them when / if it needs more money later on.

  • Comment number 34.

    Post 32 is spot on. Except that the factual error is major, rather than minor. Since there was to be a 7am LSE announcement, it didn't matter that the BBC pre-empted this by 12 hours or so. The run on Northern Rock would have happened as soon as the LSE announcement took place, and as I understand matters, the Bank of England was not able, legally, to support Northern Rock in secret. So I'm afraid the conspiracy theorists will have to look elsewhere. The run on this bank was due entirely to the unwise policies adopted by its management, but they only took to extreme lengths what most other financial institutions were doing. Will those responsible for this total mess be held personally liable? (and I don't just mean Northern Rock) Well no, they wont, the cost will fall on Joe Public, either as taxpayer, shareholder, or member of a pension scheme. What is remarkable is how few of the posters on this blog blame the people who were really responsible for their losses. If market forces meant anything, a lot of city bonuses would be getting repaid- any chance folks? No? Let's just blame the government or the BBC then.

  • Comment number 35.

    34 I attach the following quote from Willem Buiter to correct your claim that the Bank of England was unable to provide support in secret.

    The Liquidity Support Facility was in the public domain, because of the mistaken belief of the Governor that undercover, secret LoLR support for Northern Rock would have violated the Market Abuse Directive. That, of course, is nonsense, and it was contradicted the very afternoon the MAD assertion was made, by a spokesman for the European Commission. The ECB is reported to have provided undercover support to troubled Eurozone banks without creating any MAD problems. Obviously, the MAD was not created to rule out discrete, secret LoLR support where it is needed to limit unnecessary damage.

  • Comment number 36.

    testing

  • Comment number 37.

    # 30 "In effect, they have looted our economy"

    I wrote something like that last week (about
    banking "cowboys") and it got moderated out
    as libelous! Well, it seems I wasn't far
    off after all. No 30, you are spot on.
    If we let big business run its natural
    (Thatcherite) course, we'll all go to
    hell in a hand basket.

    It's time to start making good choices,
    and let business know its purpose - to
    serve us and improve _all_ our lives.
    If "free enterprise" it keeps failing miserably
    like this, then sorry, it has to go.

  • Comment number 38.

    Shouldn't out pension fund managers be supervising the companies they hold majority share holdings in ?

  • Comment number 39.

    #37 and predecessors.

    There seem to be a lot of people who feel like this. We have to take our money out of these institutions if we don't like their behaviour.
    All my savings (and mortgage) are with a building society.

  • Comment number 40.

    re 34 haufdeed

    I dont believe in alien abduction or crop circles, and Diana died in a car driven by a drunk driver. this is my only 'Conspiracy theory' as you call it. I live in Newcastle and that is my interest in this affair.
    You could be right but the thing is people were left to stew overnight on the thought of a emergency funding announcement and I'm not talking about people who watch the news all the time. Its people waiting for the next program to come on. it was Jonathan ross so it was young people who probably jumped to conclustions and phoned their parents to say the northern rock is going bust.
    If there was meant to be an announcement at 7am why wasn't it left until then? why bother announcing it earlier? if it was left to the proper time. people could have been reassured that their money was safe which it was. Then there was the feedback effect of live coverage of queues and the 3000gbp per taxpayer.

  • Comment number 41.

    Robert, this is another of your crackerjack posts. These are posts with little crackers lurking, only one or two of which are picked up by us commenters.

    You say the following: But the City watchdog, the Financial Services Authority, believes the pain will be restricted to shareholders - and there is nothing to alarm those with savings in the bank.

    The way things are going, the equity base of the banking sector is shrinking very rapidly. Share prices plummet with every announcement of a rights issue.

    It must be perturbing for the shareholders. We know that rights issues are supposed to be pitched at a price low enough to encourage existing shareholders to take up their rights. Underwriters have to take up the residue. But they do not want to do so. They simply want to earn fees. They certainly do not want to be saddled with risk.

    Problem is, the market seems to be treating the price of the rights issue as a signal of its current value. So the share price promptly drops accordingly. This makes the pricing of rights issues a bit of a problem for prospective underwriters at other banks.

    Does this mean rights issues will become less of an option, and takeovers more likely? Do not pass go, proceed directly to...

    Either way, it is obvious that shareholders are going to be bearing all of the pain. Savers need not worry in the sense that the actions by Mr King have shown that savers and depositors are safe. But your comments also confirm that policy makers are quite relaxed that bank shareholders will lose most or all of their stakes.

    This is as it should be. Savers have to be protected to keep the system stable. Shareholders are speculators who took their chances.

    People who put their money with pension funds are in an even more invidious situation than speculators. At least when you go to the races and bet on a horse you can personally experience the thrill of speculating. But if you give your money to a spiv who says pssst let me put your money on a sure thing, you are letting someone else speculate with your money. And, even worse, you will give him a share of your profits but he will not share your losses.

    This is what happens when people give money to others to so-called invest in endowments or pensions, or whatever. This is always the problem with speculating or gambling. We must be prepared to live with the consequences.

  • Comment number 42.

    Runs on banks are not created by journalists. The cause is the poor management of the bank in the first place.

    If the bank wasn't run badly then this wouldn't have happened in the first place!

  • Comment number 43.

    The fact that Bradford and Bingley is now facing difficulties on more than one front (defaulters up, profit margins down and foolish investments now comming back to haunt them simply confirms that the people running this institution have either been grossly incopetent or have been grossly negligent in the way they carried out their duties.

    As more and more horror stories come to light about the problems in the financial markets and how this is associated with way in which the banks were being managed (and probably still are being managed) then that suggests the people heading up these investment banks were living in some sort of fantasy world.

    Too many of them believed that it is possible to control the world using sophisticated (but inherentaly flawed) mathmatical models to devise their bussiness stratergy and plans. Unfortunately they became slaves to these systems and lacked the experience or gut instinct to know when things were going wrong or more importantly, how to correct matters before it was too late. If that is not the case then they should be regarded as little more than crooks who are clever at manipulating the performance figures simply in order to reward themselves with huge bonus payments.




 

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