Friday, 19 September 2008

Forget the rally, think B&B

If anyone out there has been carried away on the euphoria of today's rally and the Paulson bailout, here is a story to bring straight back to earth. Moody's downgraded Bradford & Bingley's credit rating to just one notch above junk status.

Meanwhile, the cost of protecting B&B’s debt against default, as measured by credit default swaps, continued to skyrocket. This week, it cost 558 basis points to insure against a B&B default.

Bradford and Bingley is the king of buy-to-let lenders. About 85 per cent of its mortgage book is made up of buy-to-let and self-certified mortgages. Unfortunately, its buy-to-let borrowers are running into repayments problems. Total arrears including rose from 2.1 per cent to 3.1 per cent in the first half of 2008.

Moody’s summed up the problem perfectly when it pointed out that this level of arrears was “significantly higher than that of any other rated peer in the UK; given the early stage in this cyclical downturn we expect the number of loans in arrears to continue increasing”.

So despite the 9 percent FTSE rally, the banking crisis is still here. The B&B is still a bank in desperate trouble.


Anonymous said...

Hang on. Are you saying things are not ok? But but the stock market is up tonnes today. I thought it was a buy signal?

Don't you know fundamentals don't matter? Gordon said he's doing everything possible to stabilse the market.


dearieme said...

Surely that one must be allowed to go bust?

yellerKat said...

Bungley & Bingley still trading? Party time!

AC said...

Buy to let is great if you buy at the bottom of the market.

If you buy at the top you end up with a dog investment that makes you nothing over ten years.

This is no different to the stock market !

However banks will not lone you tons of money to play the stock market. If you throw money at people they will take it and the market will rise and you will have shortages and that will make the market rise even more.

All buy to let has done is to inject a massive amount of very low interest money into the economy. Thus big boom followed by big bust !

As soon has house prices got out of hand the bank of England should have recognised what was happening and pushed up rates to kill it.

Did they not see people who were making money producing nothing. Just getting mortgages and buying houses. How is that a business ???

Anonymous said...

Oh, when checking google finance, that monster rally we had on Friday was with very low volumes.

Look at charts like for HBOS, RBS etc. Low volumes and all the volume spikes are on the intra-day sell-offs.

It's REALLY noticable on the Goldman and Morgan Stanley charts. I'm not so good with the technicals but this strikes me as a very weak rally that massively skewed the numbers, and all the smart money is now out of the market.


Ratfink said...

The word is that the hedgies are waiting for the buying to dissipate (yes, volume on Friday was much lower than Thursday), and then the selling will begin again. This could be by the end of next week. It's the last chance saloon--get out now before the October (I suspect) crash.

Anonymous said...

1) Gordon Brown shares his initials with Great Britain. What does that tell you?

2) The world economic question may be: Are we to allow the massive capital accumulation in e.g. sovereign wealth funds to manipulate the market through hedge funds' powerful use of leverage? They will pick off any company they like for the fast buck.

Put it in your mattress.

B. in C.

dearieme said...

What, the country is really called "James Great Britain"? Golly.

Anonymous said...

An imperfect analogy, but a good point: Jolly Great Gritain? (as in NOT!!!!)

B. in C.