B&B says it remains strong despite the crunch

MORTGAGE bank Bradford & Bingley has taken a further £94m hit on the value of its investments but has seen a 5% rise in underlying annual profits.

Britain's biggest buy-to-let lender said today that it is confident of its long-term prospects despite the impact of the credit crunch.

B&B, the UK's eighth-biggest bank, said its underlying pre-tax profits for the year to December 31 came in at £351.6m, up from £335.9m the previous year and ahead of analysts' forecasts of an average £347m.

But the profits did not include a bigger-than-expected hit on its more exposed wholesale assets with a write-down of £64.2m on structured investment vehicles (SIVs) and £30.2m on collateralised debt obligations (CDOs).

The bank said at the end of November that it had £125m of exposure to four SIVs and £140m of exposure to CDOs. The credit crunch has hit the value of its assets in the structured vehicles.

Headline pre-tax profits fell 46% to £126m in 2007 from £246.7m in 2006.

B&B is paying a total dividend for 2007 of 21p a share, an increase of 5%.

B&B has been seen as vulnerable to the credit squeeze because of its high reliance on wholesale funding. Rival UK bank Northern Rock has been the biggest victim of the problems which stemmed from the US sub-prime loan market.

However B&B, which employs 3,035 people, said that it expects continued progress in 2008, underpinned by a robust buy-to-let market.

Chief executive Steven Crawshaw said: “Rental levels are particularly healthy and well supported, rents are rising and tenant demand is at its strongest level for five years.

“As a well capitalised bank with high levels of liquidity and funding, Bradford & Bingley is well placed to continue pursuing its strategy.”

The lender said it grew residential lending balances by 27% to £39.4bn.

Its net interest margin fell to 1.1% in 2007, down from 1.19% in 2006 but in line with analysts' forecasts due to increased funding costs, and it expects pressure on margins to continue.

The average loan-to-value across its residential lending portfolio adjusted for house price inflation is 55%.

Mr Crawshaw added: “'These results demonstrate the strength of our underlying business, which has performed well in a challenging year for the sector. With significant funding in place and our savings business continuing to attract new money, we are confident of our ability to continue to be a leading player in the specialist lending market.”

The group said in a statement: “We are satisfied with the way in which we have, as a company, dealt with the extreme liquidity problems which emerged in the wholesale markets in the second half of 2007. In general terms, we were well placed for such difficulties. We had been careful to retain our conservative approach to our funding and, in particular, had continued to invest in our branch network and build up the amount of our retail deposits.”

It added: “The withdrawal of other lenders from the specialist markets provides us with opportunities to protect margins and continue our profitable growth in the

future.”