U.K. Nationalizes Troubled Mortgage Lender

A branch of Bradford & Bingley bank in central London, Sunday, Sept. 28, 2008. AP Photo/Sang Tan

The British government is nationalizing troubled mortgage lender Bradford & Bingley, the Treasury confirmed Monday, taking over the bank's £50 billion ($91 billion) mortgage and loan books as turmoil from the U.S. credit crisis spread across Europe.

The move comes hours after Dutch-Belgian banking giant Fortis NV was partially nationalized with an €11.2 billion ($16.4 billion) rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week.

Germany's second-biggest commercial property lender, Hypo Real Estate Holding AG, said Monday it had secured a multi-billion euro line of credit from several banks, as the financial turmoil in the United States spread further in Europe.

Treasury chief Alistair Darling said on BBC Radio that the move is intended to preserve the country's financial stability.

"We are standing behind the system to stabilize it because to let Bradford & Bingley go down would have destabilized the entire system, especially given what's going on in the world at the moment," Darling said.

The government has also paid out £18 billion ($33 billion) to facilitate the sale of Bradford & Bingley's savings business, including its entire retail branch network, to Spain's Banco Santander. Santander, the second-largest bank in Europe, said it will be paying £612 million ($1.1 billion) for Bradford & Bingley's 197 branches and £20 billion of deposits.

Bradford & Bingley is the third major British bank to run into trouble since credit crunch began just over a year ago. Northern Rock PLC was nationalized in February, and HBOS PLC sold itself to Lloyds TSB Group PLC on Sept. 18, to stem a sharply falling share price.

The government is likely to take the bank's toxic loans and either fold them into Northern Rock, another mortgage lender nationalized by the British government in February, or employ Santander to administrate them via its British banking teams of Abbey National and Alliance & Leicester, said banking analysts.

"Santander's work force might not be as over stretched as Northern Rock's is," said Alex Potter, London-based banking analyst at Collins Stewart PLC.

Bradford & Bingley was particularly vulnerable to the credit crunch because it specializes in buy-to-let mortgages. Rising mortgage rates mean that investors who took out loans to buy properties for renting out are no longer able to cover their mortgages repayments with their rental income, and many are defaulting on the loans, especially the 17 percent of Bradford & Bingley borrowers whose incomes had not been verified by the bank.

In evidence of just how tight the mortgage market is now, the Bank of England said Monday that mortgage lending had collapsed to just £143 million ($258 million) during August, only 5 percent of the previous month's £2.9 billion total.

Bradford & Bingley said last week it was cutting 370 jobs in response to the worsening economy, but that was not enough to save it.

The bank's shares plunged from around 300 pence ($5.53) at the start of the year to 20 pence (32 cents) Friday. All the company's shares had been taken into public ownership by the time the markets opened on Monday.

Bank shares were broadly lower on the London Stock Exchange. Royal Bank of Scotland was off 11.2 percent, Barclays fell 6.4 percent, Alliance & Leiciester was down 3.8 percent, and Lloyds TSB was down 6.6 percent.

The opposition Conservative Party criticized the government's action.

"What is really being saved here are not the depositors or the jobs - it is the large institutions that lent lots of money to Bradford & Bingley and made money out of that when times were good and now that times have turned down are asking every single person in the country to pay more in their taxes to bail out this bank," said George Osborne, the Conservative spokesman on Treasury issues.

But many banking analysts argue that the nationalization of the bank could be a boon to taxpayers one day, unlike the U.S. bailout plan, in which the government is simply buying up bad debts.

"In the short term it's going to cost the taxpayer loads," said Collins Stewart's Potter. "But mortgage books are cyclical. We might find that the government, and the taxpayer, loses X million now, but then makes X million in the upturn and floats Bradford & Bingley for a profit at the other end."


Shares In Fortis Slide Despite Infusion Of Government Funds

Shares in troubled bank Fortis NV slid again on Monday despite a €11.2 billion ($16.4 billion) government bailout amid growing signs European banks have been hit harder by the U.S. financial crisis than they have been willing to admit.

Belgium, the Netherlands and Luxembourg agreed late Sunday to the cash injection to avert a run on Fortis, taking a 49 percent stake in exchange and demanding Fortis resell the share of ABN Amro it bought a year ago - the very decision that brought about all its troubles.

Insolvency fears caused the company's shares to tumble more than 20 percent Friday to their lowest level in 15 years. After a short-lived rally at the open Monday they fell again, and were down 6.9 percent to €4.83 ($6.93) in Amsterdam - less than a fifth of what they were worth before the ABN buy.

Fortis, with headquarters in Brussels, Belgium, and Utrecht, Netherlands, is Belgium's largest retail bank, while ABN Amro is the largest in the Netherlands.

It paid €24 billion for its share of ABN in October 2007, and said prior to Sunday's bailout it needed to raise around €5 billion ($7.3 billion) in cash to maintain financial ratios as it integrated ABN's Dutch retail operations next year.

Fortis had insisted it could meet that shortfall by selling other assets, but analysts were increasingly skeptical as there are few buyers in the market and many sellers.

Traders too, appeared to think the bank was over-leveraged. The bank's total market capitalization is around €12.1 billion ($17.5 billion) - half what it paid for ABN.

Nout Wellink, the head of the Dutch central bank, said the U.S. financial crisis was partly to blame.

"What is happening in the U.S. has most certainly had an impact on the financial sector in the rest of the world," he told reporters. "Due to rumors, I have to say, Fortis became a bank in a special position."
By AP Business Writer Emily Flynn Vencat; the AP's Bob Barr and Meera Selva in London contributed to this report
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