Shares plunge as B&B is nationalised

By This Is Money
Updated: 08:02 EDT, 10 October 2008

Struggling mortgage lender Bradford & Bingley is to be nationalised, the Government confirmed today.

B&B's savings and branch business - which has £20bn in deposits and 2.7m customers - will be bought for £612m by Santander, the Spanish bank which owns Abbey and has agreed to buy Alliance & Leicester.

Under the deal the Government will take on B&B's £41bn mortgage book.

B&B's branches will remain open this morning as usual with call centres and internet banking also available, the Treasury said.

News of the bailout - and a $700bn rescue package in the US - failed to stabilise markets and the FTSE 100 tumbled below 5000 points again. It ended the day down nearly 5% or 253 points at 4835.5.

- Alex Brummer: 'Shouldn't fatcats pay a higher price?'

Today's break-up will mark a dramatic end to a business which can trace its roots back more than 150 years.

The Financial Services Authority (FSA) decided on Saturday morning that B&B was not strong enough to continue as a deposit-taking business after the recent financial turmoil undermined confidence in the bank.

'The Government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers,' the Treasury said.

'For savers and borrowers of Bradford & Bingley it will be business as usual,' it added.

But Gordon Brown today came under fire by Shadow Chancellor George Osborne for running 'Casino Capitalism'.

Speaking at the Tory conference, Osborne said 'The Brown boom has ended in bust.'

Meanwhile Brown pledged to do 'whatever it takes' to preserve the financial system after a second bank nationalisation in a year. Read more.

Before B&B became a bank in 2000, it was one of the UK's best-known building societies. It has around 3,000 staff and 197 branches, and was the last former building society to retain its independence after the nationalisation of Northern Rock in February and July's announced takeover of Alliance & Leicester.

>> Shareholders' anger over B&B wipeout

The combined business of Abbey, Alliance & Leicester and B&B will have 1,286 branches across the UK, giving Santander a 10% share of the retail savings market.

The Financial Services Compensation Scheme has paid out £14bn - a loan funded by the Bank of England - to allow B&B's retail deposits to be transferred to Abbey, with a further £4bn to be paid by the Treasury to cover those deposits not protected by the scheme.

B&B's shares have been cancelled, with compensation to be paid in 'due course', the Government said.

Chancellor Alistair Darling told GMTV: 'My priority was to protect savers and depositors but also to ensure we got a good deal for the taxpayer.'

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'We had to stabilise the situation in order to protect the banking system as a whole, just as we have done on previous occasions.'

Anto Horta-Oso, Abbey's chief executive, said: 'This is good news for Bradford & Bingley's savings customers. They can be certain that their hard-earned savings are with a bank they can trust.'

But the B&B brand will remain within Santander, which has a total of 60m customers in more than 40 countries worldwide.

B&B has been squeezed by the credit crunch hiking its funding costs, and the housing market slowdown casting doubt over its main buy-to-let business.

The firm has seen bad debts and arrears soar, lostms on complex mortgage-backed investments hit by the turmoil, and its investment status downgraded by ratings agencies - making it more expensive for the group to do business.

The lender has also taken an £18m hit from organised fraudsters hitting the wider buy-to-let sector by gaining bigger mortgages than properties are worth.

The group will continue to be led by chief executive Richard Pym in the initial period of public ownership. Mr Pym succeeded Steven Crawshaw, who stepped down for health reasons in June.

• New B&B boss could be in line for £1.8m after 30 days work

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