Government to nationalise struggling Bradford & Bingley » Communities » 24dash.com

Struggling mortgage lender Bradford & Bingley is to be nationalised, the Government confirmed today.

But B&B's savings and branch business - which has £20 billion in deposits and 2.7 million customers - will be bought for £612 million by Santander, the Spanish bank which owns Abbey and has agreed to buy Alliance & Leicester.

B&B's branches will remain open this morning as usual with call centres and internet banking also available, the Treasury said.

Today's break-up will mark a dramatic end to a business which can trace its roots back more than 150 years.

The Financial Services Authority (FSA) decided on Saturday morning that B&B was not strong enough to continue as a deposit-taking business after the recent financial turmoil undermined confidence in the bank.

"The Government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers," the Treasury said.

"For savers and borrowers of Bradford & Bingley it will be business as usual," it added.

Before B&B became a bank in 2000, it was one of the UK's best-known building societies.

It has around 3,000 staff and 197 branches, and was the last former building society to retain its independence after the nationalisation of Northern Rock in February and July's announced takeover of Alliance & Leicester.

The combined business of Abbey, Alliance & Leicester and B&B will have 1,286 branches across the UK, giving Santander a 10% share of the retail savings market.

The Financial Services Compensation Scheme has paid out £14 billion - a loan funded by the Bank of England - to allow B&B's retail deposits to be transferred to Abbey, with a further £4 billion to be paid by the Treasury to cover those deposits not protected by the scheme.

B&B's shares have been cancelled, with compensation to be paid in "due course", the Government said.

Chancellor Alistair Darling told GMTV: "My priority was to protect savers and depositors but also to ensure we got a good deal for the taxpayer."

Mr Darling also told GMTV: "We had to stabilise the situation in order to protect the banking system as a whole, just as we have done on previous occasions."

Anto Horta-Oso, Abbey's chief executive, said: "This is good news for Bradford & Bingley's savings customers. They can be certain that their hard-earned savings are with a bank they can trust."

But the B&B brand will remain within Santander, which has a total of 60 million customers in more than 40 countries worldwide.

B&B has been squeezed by the credit crunch hiking its funding costs, and the housing market slowdown casting doubt over its main buy-to-let business.

The firm has seen bad debts and arrears soar, lost millions on complex mortgage-backed investments hit by the turmoil, and its investment status downgraded by ratings agencies - making it more expensive for the group to do business.

The lender has also taken an £18 million hit from organised fraudsters hitting the wider buy-to-let sector by gaining bigger mortgages than properties are worth.

The group will continue to be led by chief executive Richard Pym in the initial period of public ownership. Mr Pym succeeded Steven Crawshaw, who stepped down for health reasons in June.

Mr Darling said the Government had taken "quick, decisive action" to maintain economic stability and promised that the taxpayer would be protected.

The plan is to liquidate the bank's assets, Mr Darling, said, with any shortfall being made up with a claim against the rest of the banking industry.

Setting out details of the plan, Mr Darling told the BBC Radio 4 Today programme: "Firstly the retail arm of the bank - that's the savings and branches - they have been sold to Abbey, which is owned by Santander, which is one of Europe's biggest banks, for just over £600 million.

"We are taking into public ownership, nationalising, using the special powers that we got earlier this year, the mortgages of the bank.

"In relation to the savers, their savings are now with Santander/Abbey so they can be secure in that knowledge.

"In relation to the mortgage business, what we have done is that we are taking that over, we will run it, those mortgages will get redeemed.

"In relation to the taxpayer, which is clearly very important, first of all when you transfer the savings, we need to transfer the cash that goes behind them - the Government will stand behind that in the first instance and, of course, as mortgages are redeemed and the assets are redeemed, we will be repaid.

"If that isn't sufficient, we will then make a claim on the wider banking industry, under the compensation scheme which already exists, so that if the assets are insufficient the balance will be collected from the banking industry.

"Now we are not going do that immediately, because in the current climate that would be absolutely daft. But it does mean that in the future as things get better, if there is a shortfall, then we will collect it from the industry.

"So what you are seeing is the Government taking quick, decisive action. We are standing behind the system to stabilise it because to let Bradford & Bingley go down would have destabilised the entire system especially given what's going on in the world at the moment."