Troubled B&B's warning: 'Things can only get worse'

Published on Friday 29 August 2008 20:52

EMBATTLED mortgage lender Bradford & Bingley yesterday starkly warned of a further surge in arrears and repossessions this year as it slumped £26.7 million into the red at the halfway stage.

Rod Kent, group chairman, said: "We expect arrears to get worse in the second half. We are absolutely not calling the top.

"Difficult conditions in financial and housing markets are now in the general economy. It is difficult across the board."

His comments came as B&B revealed that the number of mortgages three or more months in arrears across its book worsened to 2.29 per cent from 1.48 per cent at the end of December – a rise of more than 50 per cent.

B&B repossessed 717 homes in the first half compared with 471 a year ago. Mortgages with more than three months in arrears almost doubled to 8,854.

Industry experts say hundreds of thousands of people are struggling to meet mortgage payments amid soaring food and oil prices and rising gas and electricity bills.

B&B's bad-debt charges on its lending leapt to 74.6m from just 5.3m last year as more borrowers struggled to keep up payments.

The bank, widely seen as having launched a botched rescue rights issue earlier this summer, also wrote off 155m on complex treasury investments hit by the continuing financial turmoil.

B&B's interim losses – its first in four years – compared with profits of 180.4m in the same period of 2007 before the credit crunch in money markets bit last August.

The writedowns and losses combined add up to almost half the cash raised by B&B in an emergency 400m rights issue completed earlier this month. Kent denied B&B's letting-to-landlords business model, about 60 per cent of the business, was particularly vulnerable in the economic downturn. He told The Scotsman: "Absolutely not. Buy-to-let (BTL] is the backbone of our business. The layman might think that (the sector is vulnerable] but he would be wrong.

"All our landlords have a long-term view. They know residential property well and they operate locally in areas they know."

Kent added that B&B's average BTL customer was "in their late 40s. They look upon it as their pension as they don't trust the volatility of stocks and shares, which they feel they don't know so well as property".

He said he was "comfortable" that 42 per cent of B&B's funding was from the wholesale financial markets, the same as two years ago, even though they are still in the grip of a credit squeeze.

The bank's new chief executive, former Alliance & Leicester boss Richard Pym, said: "2008 and 2009 are obviously going to be tough years but beyond that we are well capable of riding out the current storm." Pym is due to outline his strategy for B&B in October.

The bank's shares, which have lost 80 per cent since January, closed down a further 2.5 per cent, or 1.25p, at 49p.

Mike Trippitt, banking analyst at broker Oriel Securities, said: "Every aspect of the business is tough – arrears are rising, the average mortgage life is lengthening, so they are not able to get new customers on at more economic margins, they are having to battle for retail deposits.

"It is going to be a slow slog."

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