Sunday, 28 September 2008

So farewell, B&B

This morning's newspapers report that the Treasury is on the verge of nationalizing the Bradford and Bingley. Government intervention is inevitable. On Saturday, the bank experienced significant withdrawals of cash from its branches and online bank. By Monday, withdrawls would have snowballed into a full-scale run.

The bank reached the end of the road on August 29 when it published its half yearly interim results. Few were surprised to hear the bank report losses of ₤26 million. The arrears situation was deteriorating. The share price kept falling. Despite the recent rights issue and management claims of being well capitalized, no one was buying the happy talk from the B&B management. Last week, the credit rating agencies acknowledged that the bank was in trouble and belatedly downgraded the bank.

Thankfully, the B&B isn't in quite the same league as Northern Rock. As of June 30, the bank held about ₤52 billion of assets, of which around ₤39 billion are loans. Most of the loans are to buy-to-let customers. In terms of liabilities, the bank have some ₤20 billion in retail deposits. The Treasury should find this nationalisation less traumatic.

The real difficulty with B&B is the lending book. While the B&B had its own "organic" loans, which it generated through its own branch network, it also had a large amount of acquired lending; loans it bought from other institutions. The arrears numbers on these acquired loans are horrible. The bank also dipped deeper than most into the self-certification loan market. The arrears rate on these loans is high and rising. It is a lending book that will deteriorate further as the economy slows and borrowers run into payments difficulties.

According to media reports; the B&B's loan book is likely to stay on the government books for long time. The Treasury appears to have the good sense to understand that fire sale of bad loans would not be in the best financial interest of taxpayers. As for the retail deposits, the government will auction them off to the highest bidder.

I am curious how this latter transaction will work. Deposits, are of course, liabilities to banks. Presumably, these liabilities will be backed up by some form of government paper. It is just a guess here, but if this is how the Treasury will arrange this sale, then the B&B will add around ₤20 billion to government debt.

A second issue will be the remainder of the B&B's liabilities. Will the creditors receive a government bailout, or will they have to wait until the B&B is liquidated?

The demise of the B&B is a serious blow to the buy-to-let business. In future, investors will need to receive a significant risk premium if they are to be persuaded to invest in specialist BTL investors.

The end of the B&B also rules out any serious possiblity of banks recapitalizing via rights issues. Anyone who invested in the B&B earlier this summer would have literally thrown their money away. Investors won't make the same mistake again.

Like the NRK failure, the end of the B&B marks a major turning point on the road towards deflating the UK's housing bubble. Just as the NRK collapse signaled the end of the high LTV retail mortgage; the B&B signals the end of BTL loans to highly leveraged small time speculators.


Rob said...

Isn't it now time to have a UK equivalent of the
campaign? People who want prices to fall need some real focused action to persuade MPs etc that they've had enough of the bailouts of the housing market and the irresponsible.

Anonymous said...

I'm still waiting for a good reason not to let it fail. It's not like B&B was going to seize up the CDS or CP markets.


aSteve said...

Agreed, Nick. It would be a great way to prove that £35K is all you've got insured.

It would have an amusing effect, at least. I've no idea if this would move the markets higher or lower.

peterthepainter said...

alla banks is BUST...anna sky is greeeyyy...politix a schemin onna autumn daaaayy...


Anonymous said...

情趣用品,情趣,情色,成人,A片,自拍,情趣用品,情趣,色情,成人影片,色情影片,免費A片,情趣用品,情趣,成人網站,A片下載,日本AV,做愛,情趣用品,情趣,美女交友,A片,辣妹視訊,情色視訊,情趣用品,情趣,色情聊天室,聊天室,AV,成人電影,A片,情趣用品,情趣用品,情趣商品,情趣,情趣情色,A片,AIO,AV,日本AV,色情A片,AV女優,A漫,免費A片,A片下載,情色A片,哈啦聊天室,UT聊天室,聊天室,豆豆聊天室,色情聊天室,尋夢園聊天室,080視訊聊天室,080聊天室,080苗栗人聊天室,免費視訊聊天,上班族聊天室,080中部人聊天室,視訊聊天室,視訊聊天,成人聊天室,一夜情聊天室,辣妹視訊,情色視訊,成人,成人影片,成人光碟,成人影城,自拍情趣用品,A片,AIO,AV,AV女優,A漫,免費A片,日本AV,寄情築園小遊戲,情色貼圖,色情小說,情色文學,色情,色情遊戲,一葉情貼圖片區,色情網站,色情影片,微風成人, 嘟嘟成人網,成人,成人貼圖,18成人,成人影城,成人圖片,成人影片,UT聊天室,聊天室,豆豆聊天室,尋夢園聊天室,080聊天室,080苗栗人聊天室,080視訊聊天室,視訊聊天室情趣用品,A片,aio,av,av女優,a漫,免費a片,aio交友愛情館,a片免費看,a片下載,本土自拍,自拍,愛情公寓,情色,情色貼圖,色情小說,情色文學,色情,寄情築園小遊戲,色情遊戲,嘟嘟情人色網,一葉情貼圖片區,色情影片,情色網,色情網站,微風成人,嘟嘟成人網,成人,18成人,成人影城,成人圖片,成人貼圖,成人圖片區,成人小說,成人電影情趣用品,情趣,情趣商品,自拍,UT聊天室,聊天室,豆豆聊天室,哈啦聊天室,尋夢園聊天室,080聊天室,080苗栗人聊天室,H漫,A片,AV,AV女優,A漫,免費A片,愛情公寓,情色,情色貼圖,色情小說,情色小說,情色文學,色情,寄情築園小遊戲,色情遊戲,SEX,微風成人,嘟嘟成人網,成人,18成人,成人影城,成人圖片,成人貼圖,成人圖片區情趣用品,情趣用品,情趣,情趣,情趣商品,A片,A片,A片,A片,A片,A片,中古車,二手車,情色小說,色情,情色視訊,寄情築園小遊戲,AIO交友愛情館,色情遊戲,情色交友,嘟嘟情人色網,言情小說,一葉情貼圖片區,情色論壇,色情影片,情色網,色情漫畫,UT聊天室,聊天室,豆豆聊天室,哈啦聊天室,尋夢園聊天室,視訊聊天室,080聊天室,視訊聊天,美女交友,視訊做愛,情色視訊,免費視訊A片,A片,A片下載,做愛,成人電影,18成人,日本A片,情色小說,情色電影,成人影城,自拍,情色論壇,成人論壇,情色貼圖,情色,免費A片,成人,成人光碟