Bradford & Bingley to Cost UK Taxpayers $300Bn

By Robert Winnett and Harry Wallop
The Telegraph Online

British taxpayers will be liable for more than £150 billion of potentially toxic mortgage debt following the nationalisation of Bradford & Bingley, one of the country’s biggest mortgage lenders.

Alistair Darling, the Chancellor, will announce this morning [MON] that the Government is taking over the bank’s mortgages and selling off the savings business and the branches. Savers are reassured that their money is safe although people owning shares in the bank will lose out.

The Government may merge the bank, which has mortgages worth more than £40 billion, with the nationalised Northern Rock. Every taxpayer in Britain will be exposed to the equivalent of £5,500 in mortgage debt as a result.

In another day of frantic action around the world, the American Government also agreed a $700 billion deal to take on bad banking debts following several days of intense talks in Washington. However, British taxpayers are now more exposed to mortgage debts than their American counterparts, who are saddled with the equivalent of £2,750 per taxpayer.

European regulators were also rushing last night to rescue Fortis, a large Belgian bank, which is Britain’s third biggest motor insurer. Fears are mounting about the viability of Wachovia, an American bank seeking a takeover.

Investors are braced for another volatile day on share prices as stock markets digest the various rescue packages now being launched.

The Centre for Economics and Business Research (CEBR), a leading forecaster, will today predict that the British economy will fall into recession in the second half of this year. It believes that the economic prospects could worsen even further if the Treasury and Bank of England cannot re-establish confidence in the financial markets.

The Treasury spent the weekend in intensive discussions with Bradford & Bingley and other banks. Under the deal agreed, Bradford & Bingley’s savings business and some branches will be sold to a rival high street lender. The branches are expected to be open for business as usual on Monday morning.

However, there are expected eventually to be large job losses and branch closures.

The Government will nationalise Bradford & Bingley’s mortgage business – which is regarded as one of the most risky in the business. Ministers hope that the move may mark the end of the immediate crisis among banks – following the emergency takeovers of HBOS and Alliance & Leicester and the nationalisation of Northern Rock. Several smaller building societies have also merged with larger rivals.

Bradford & Bingley is the country’s eighth biggest provider of mortgages and the biggest buy-to-let mortgage lender. It has more than two million savers, employs 3,200 people and has almost 200 branches across the country.

It was formerly a staid building society which floated on the stock market in 2000 paying windfalls to hundreds of thousands of customers. The share price has since fallen by more than 90 per cent. Every demutualised building society has now been taken over or collapsed.

Since becoming a bank, Bradford & Bingley changed its business model and began diversifying into far more risky areas of business. More than 80 per cent of its mortgages are to amateur landlords or people who “self-certify” their income and do not need to provide any proof of their pay.

It raised the bulk of its money to fund mortgages on international finance markets. However, following the credit crisis and the deteriorating state of the housing market, other banks are now reluctant to lend Bradford & Bingley money. A drop in its credit rating also meant that creditors could start calling in their loans.