Bradford & Bingley nationalised as Santander swoops

The Government confirmed that Bradford & Bingley is to be nationalised.

Under the arrangement, the Government will take control of the bank’s £50bn in mortgages and loans, and shares in the company have been suspended.

B&B’s £20bn savings business and branch network will be bought by Spanish banking giant Santander for £612m, which already owns Abbey and Alliance & Leicester.

The deal will include the transfer of £208m of capital relating to offshore companies.

In a statement the Treasury said: “Following recent turbulence in global financial markets, Bradford & Bingley has found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution.”

It added that the move would protect savers’ money and that B&B’s branches, call centres and internet operations would “be open for business as usual to provide continuity of service to customers”.

Although there will be concerns about jobs following the moves, the deal is good news for the taxpayer however.

Chancellor Alistair Darling said that as assets were redeemed any shortfall would be sought from the banking industry.

Only last week B&B – Britain’s eighth largest mortage lender – said it had sold all of its problematic mortgage-related derivatives. It also announced plans to cut 370 jobs, mostly by closing a mortgage processing centre.

The combined business of Abbey, Alliance & Leicester and B&B will have 1,286 branches.

The bank, which has its headquarters in Bingley, West Yorkshire, employs around 3,200 staff and has nearly one million shareholders.

Last Friday its shares tumbled to a record low closing 20p, valuing the company at less than £300m pounds.

B&B is the second UK bank to be nationalised as a result of the credit crisis following Northern Rock earlier this year.

European regulators were also working through the night to rescue Belgian bank Fortis – the UK’s third largest motor insurer.

The Centre for Economics and Business Research predicts that the UK economy will fall into recession in the second half of this year.

Economic prospects could even worsen it states if the Treasury and Bank of England fail to re-establish confidence in the market.

“We expect the United Kingdom economy to suffer a technical recession in the second half of 2008. It will be the autumn of 2009 before the economy will recover,” it said.

“We are growing increasingly concerned that time is running out for the government and monetary policy authorities to avoid a prolonged slowdown. It is time for the Bank of England’s monetary policy committee to stop sitting on the fence and to cut rates.”

B&B was demutualised in 2000 and listed on the stock exchange later that year. Around 40% of its shares are still held by retail investors.

At its peak in March 2006, B&B was worth £3.3bn. The shares have tumbled 93% this year and closed on Friday at 20p each, valuing the lender at under £300m pounds.

The building society originally formed in 1964 from the merger of the Bradford Equitable Building Society and the Bingley Building Society. Both those societies were established in 1851 to support people of northern English mill towns.

In recent years it transformed itself into a specialist mortgage bank and is Britain’s largest buy-to-let lender, providing loans to landlords and property investors. It also provides “self-cert” mortgages, or loans for the self-employed and those with more than one job, and a “lifetime” mortgage, allowing borrowers to release the equity they have built up in their main residence.

The bank’s problems intensified in May, when it announced plans for a £300m pound emergency rights issue, a month after denying it had any plans to do so.

It raised £400m from a rights issue in August to shore up its capital. But the rights issue was a flop after its shares fell, and UK banks HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS and Spain’s Santander were left owning over a fifth of its shares after stepping in to help.

B&B sank to a loss of £27m in the first six months of 2008, hit by £155m in writedowns and investment losses and a rise in bad debts. Its 2007 profit fell to £126m pounds from £247m in 2006, after it took a £94m writedown last year.

Last year’s nationalisation of Northern Rock cost the taxpayer £24bn.