Wednesday, 13 February 2008

The B&B - it is bad

The Bradford & Bingley just announced their numbers for last year. Am I the only one who thinks that these numbers are just plain mad?

Loans to mortgage borrowers increased 27 per cent in 2007

The housing market was topping off and the B&B increased their mortgage lending by 27 percent. That sounds a little reckless, don't you think? Was anyone in the B&B thinking about risk?

The B&B took 7.7 per cent of the new lending market, more than double its 3.3 per cent share of the existing market.

To coin an old cliche, fools rush in where angels fear to trend. The divergence between new lending and market share suggests that the B&B kept lending while other banks were pulling back.

Net interest margin slipped by 9 basis points

The B&B is trying to attract cash by cutting the margin between borrowing and lending rates. This is not the act of a healthy institution.

Arrears are now 1.63 per cent of the total loan book; up from 1.3 per cent.

Bad loans are in the increase; an ominous sign going forward.

Bad debt charges on its residential mortgages had trebled

Let me get this straight; the B&B increased its mortgage lending by 27 percent while it needed a three fold increase in bad debt charges on its residential lending. The B&B would benefit from better internal communication. Don't they talk to each other?

Impairment charges and one-off losses amounted to £225.6 million

The B&B recorded these losses when; a) the economy was growing at around 3 percent; b)unemployment is at an all time low and c) house prices during the first half of the reporting period were growing rapidly. I wonder what those losses would be if; i) the economy drifted into a recession, ii) unemployment increased a few percentage points, and iii) house prices crashed?


Josh said...

Bradford and Bingley smells a lot like Northern Wreck.

Dave D said...

Could HMT afford a second bank failure? This could be interesting.....

Economonkey said...

A great bit of analysis. You are my new personal hero, Ms Cook.

traderboy said...

I love this post. It's exactly my line of thinking...B&B will not escape this mess, the government will not bail out a second bank, so bankruptcy beckons. get your money out while you can.

Anonymous said...

Years ago groups like B&B were 'building societies' before the rush to convert most of them to 'banks'.

When the dust settles, and with the need to rebuild the financial institutions will there be space again for the traditional building societies, with their more conservative style lending and encouragement of savings?