Britain nationalizes lender in latest rescue bid - Summary
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Thu, 02 Oct 2008 13:33
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London - The British government Monday averted another direct blow to the crisis-hit banking sector by nationalizing one of the country's major mortgage lenders and selling its savings business to Spanish banking giant Santander. In a deal hammered out during frantic negotiations over the weekend, in which Prime Minister Gordon Brown took an active part, the government agreed to the nationalization of the "bad debt" of lender Bradford & Bingley (B&B), while selling off its savings arm. Santander Monday placed the overall value of the B&B deal at 612 million pounds (1.1 billion dollars) and said the acquisition price included the transfer of 208 million pounds in capital relating to offshore companies. "We will do whatever it takes to ensure the stability of the financial system in the wake of the nationalization of Bradford & Bingley bank," Prime Minister Gordon Brown said in a statement. The deal was struck amid fears of a "second Northern Rock" - a reference to the near-collapse of Britain's fifth-biggest mortgage lender last year, prompted by a run on the bank by angry investors. Analysts said it also marked a provisional climax in the fall-out now felt in Britain from an "unsustainable property boom built on easy credit."Northern Rock was nationalized early this year in a massive bailout, after no commercial buyer could be found. Last month, HBOS, the country's largest mortgage lender, was taken over by banking giant Lloyds TSB in a government-backed rescue bid. The demise of Bradford & Bingley marks both the end of an era - the death of the 150-year-old concept of the building society in Britain - and the birth of a new savings giant in the shape of Spain's Santander group. However, judging by the initial stock market response, the deal failed to calm the nerves of investors as major bank shares were down by more than 10 per cent in London Monday. "There is just no confidence in the market," said one stockbroker. By hammering out a deal for B&B in cooperation with the financial watchdog, the Financial Services Authority (FSA), the government had taken a "clear role" in making sure that stability was provided, deposits were safe and the business could continue trading, Alistair Darling, the Chancellor of the Exchequer, said. Under the deal, Santander, which has around 60 million customers in 40 countries, will take over the savings and deposits business of B&B, along with its 3,000 branches and 2.6 million savers. The Spanish bank is currently in the process of purchasing Britain's Abbey National and Alliance & Leicester - both former building societies which were transformed into banks around 2000. The operation "further strengthens Abbey's retail customer deposit base and franchise" and "allows Santander to deliver increased critical mass in the United Kingdom," a bank press release said. Santander expects its British market share of retail deposits to increase to around 10 per cent. Abbey chief executive Antonio Horta-Osorio said the acquisition was "good news for Bradford & Bingley savings customers" who "can be certain that their savings are with a bank they can trust."Despite Spain's deepening economic crisis, Santander chairman Emilio Botin said a week ago that the bank intends to increase its profits by 10.3 per cent this year. Meanwhile, B&B's volatile loans and mortgage business, worth an estimated 50 billion pounds, will be transferred into temporary public ownership. B&B was the main lender in the so-called buy-to-let market in Britain, where investors speculated on rising house prices. Its share price fell by 90 per cent over the past year, dropping to 20 pence at the end of last week. The latest government move prompted speculation Monday that Britain could one day witness the creation of a "toxic bank" with the transfer of B&B's "bad mortgages" to Northern Rock.
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