B&B’s frantic survival efforts hit a snag

Article source: www.news.sky.com

B&B’s frantic survival efforts hit a snag

The credit crunch facing the global economy has left some of the world’s strongest financial institutions on shaky ground and consequently some have collapsed.

We have seen some of the world largest financial institutions fall into the arms of the government to avoid going under. Just recently, for example, the Bradford & Bingley bank which has had its fair share of trouble had its mortgage book was taken into government ownership. The bank’s £41 billion mortgage book was nationalised whilst its £22 billion savings business and entire branch network will be handed over to the giant Spanish banking group and owner of the Abbey National, Santander.

Bradford & Bingley’s collapse put a feather on the hat for the despondent performance over the year that has seen boardroom havoc, messed up funding attempts and a downward run disaster. The bank’s issues have arisen from its decisions to use money markets to facilitate its business funding.

There has been an escalation in London Inter Bank Offer Rate (LIBOR – the rate at which banks lend to each other) as banks are increasingly reluctant to lend to each other. This has in the short term raised many questions about the future of the Bradford & Bingley Bank.

Here are some of the major events which have over the last few months for the Bradford & Bingley, in chronological order:

February 13 - The firm showcases annual profits of £126million (that is 49%) below the previous year after a hectic and thorny period for the banking sector as a whole. Also by this time bad debt charges treble, client arrears rise, and the firm writes off £144.1million on investments hit by the credit crunch.

February 17 – The troubled Northern Rock is taken into Government hands.

April 13 – Word has it that Bradford & Bingley is making desperate attempts to raise hundreds of millions from shareholders in a share rights issue. The bank swiftly moves in to deny the claims.

April 22 – The bank assures continued funding for its operations with accomplishment facilitated by a £1.9 billion increase in savings and deposits since the beginning of 2008. Besides that, the bank stipulates that demand for its buy-to-let mortgage products is "robust". Shares are standing at 163.5p by this time.

May 14 - In an unforeseen turn of events that implies there is trouble in paradise, Bradford & Bingley launched a rights issue; this was in a bid to raise £300 million to reduce the pressure on its murky balance sheet. At this point its shares dwindle to a record low. The new shares were offered at a surprising 82p - a 48% discount to the previous evening's close. The bank’s chief executive says the move will strengthen its financial standing and position it as one of the better capitalised banks in the UK.

July 4 - Bradford & Bingley once again launches its rights issue plans for a second time - supported by major investors - but its shares fall below the 55p "discount" price. Unfortunately, Texas Pacific pulls out of the deal to buy a 23% stake in Bradford & Bingley after the lender's investment status was downgraded by one credit ratings agency.

August 29 – The Bradford & Bingley (B&B) Bank runs into disaster in the first half of this year; these problems were caused by the credit crunch and rising mortgage arrears. The bank records pre-tax losses that are a staggering £26.7million. As a result, shares fall to an astounding low of 49p.

September 28 – Santander, the giant Spanish Banking Group and owner of the Abbey and the Alliance and Leicester, finally announces it will take over the troubled Bradford & Bingley's retail savings and deposits business and their branch network.