Bradford & Bingley’s Profit Warning
Bradford & Bingley announced a profits warning, its reliance on the buy-to-let market giving it problems. It has announced that it is selling off 23% of its business. Market analysts say that B&B will not become another Northern Rock.
British banks had a bad day at the office on Monday as they lost £4bn worth of share value following Bradford & Bingley’s warning of drastically reduced profits. B&B announced an £8m pre-tax loss in the first four months of the year following an £89m hit from the credit crisis and £36m in charges from increasing arrears.
B&B’s shares had to be suspended for a while, and they fell by 25%, pulling down the value of the big five banks as well.
Bradford & Bingley is the UK’s biggest buy-to-let mortgage lender and has suffered as the prices of houses have fallen, meaning that the buy-to-let market has been depressed.
As a result B&B had planned to offer a rights issue to raise money as it is having difficulties raising cash in the credit crunch. The plans are still in place, but the price of the shares on offer has been slashed. The markets have been particularly concerned about B&B’s reliance on the buy-to-let market. The former building society has announced that it is selling off 23% of its business to a private equity firm called Texas Pacific Group. The sale will raise £179m.
Market analysts say, however, that B&B is not another Northern Rock. The north eastern bank had liquidity problems which it had to call on the Bank of England to rescue.
Bradford & Bingley HAS suffered from writedowns and losses, but for only £500m, compared to its savers’ deposits of £22.9bn. The equity injection from the rights issue will help give B&B one of the strongest banking balance sheets in the UK.
For customers of Bradford & Bingley the advice is to hold firm and not panic. There is no need to withdraw savings or look for another mortgage lender, even if your B&B mortgage is coming to an end.
