Government takes on Bradford&Bingley's mortgages

Published on 30/09/2008 01:26

THE government has formally seized control of ailing mortgage lender Bradford & Bingley.

Government takes on Bradford&Bingley's mortgages

THE government has formally seized control of ailing mortgage lender Bradford & Bingley.

B&B's fall into public ownership puts 50 billion – including 41 billion in mortgage loans – on the public balance sheet.

Gordon Brown, the Prime Minister, said the government had taken "decisive action", and the head of the Financial Services Authority (FSA) warned there could be more turmoil to come.

B&B was squeezed as the credit crunch hiked its funding costs, and the housing market slowdown cast doubts over its main buy-to-let business.

Bad debts and arrears have soared, it has lost millions on complex mortgage-backed investments, and had its investment status downgraded.

B&B's savings business and branches – with 2.7 million customers and 20 billion in deposits – have been sold to Spain's Santander for 612 million. Santander, which is keeping the B&B brand, owns Abbey and recently agreed to buy Alliance & Leicester. The deal will give it 10 per cent of the UK retail savings market.

Alistair Darling, the Chancellor, said: "We had to stabilise the situation in order to protect the banking system as a whole."

He denied the former building society had received more favourable treatment than HBOS, which was left to be taken over by Lloyds.

The Treasury said it would be "business as usual" for B&B's savers and borrowers.

B&B has about 3,000 staff and 197 branches and was the last former building society to retain its independence after Northern Rock's nationalisation and July's takeover of Alliance & Leicester.

The Financial Services Compensation Scheme (FSCS) has paid out 14 billion – a loan funded by the Bank of England – to allow B&B's retail deposits to be transferred to Abbey.

The Treasury is paying a further 4 billion to cover deposits not protected by the FSCS – those with savings of more than 35,000 – and will then take on the Bank of England loan.

The government argues the risk to the taxpayer is minimal because the loans will be paid back by mortgage redemptions.