Carry On As Usual With B&B
Although B&B announced a drastic cut in profits, its share price plummeted and it had to cut its rights issue price, both saving and borrowing customers are being told to carry on as normal with the bank. It is B&B’s exposure to the Buy-to-Let market that has given it problems.
Despite the recent problems at Bradford & Bingley and its plummeting share price, customers are being advised to carry on as usual.
Following its announcement last week of a drastic fall in profits and a sell-off of part of its business to the US private equity group Texas Pacific Group, B&B saw its share price sink below its previously declared rights issue share price, causing it to cut the price of those rights issue shares.
Customers may be fearing another Northern Rock. However, Rock was not allowed to go under, and the Government would not allow B&B to go under either.
Savers with money up to £35,000 in B&B will have their money protected by the Financial Services Compensation Scheme, so they need not worry. A fundamental difference between Rock and B&B is that the latter has a healthy savings book, whereas Rock’s was in a much worse state.
For those B&B customers with mortgages, they should carry on as normal making their monthly repayments. The worst thing they could do would be to stop making payments – it would only hurt their own credit record. B&B is also still offering new mortgage deals to current customers whose current deals are coming to an end.
The big problem that B&B have had has been with buy-to-let mortgages. With interest rates on buy-to-let mortgages having risen, customers are deserting and looking for new deals elsewhere. The trouble is that as B&B is Britain’s biggest buy-to-let lender, other lenders are likely to follow suit in raising rates – not good news for buy-to-let mortgage holders.
B&B is trying to raise £400m from its rights issue to supports its operations and UK clearing banks are falling into place to assist. Citigroup and UBS are the underwriters of the cut-price rights issue, and HSBC has agreed to replace them if either pulls out. The FSA also had talks with the top three British banks in the week leading up to B&B’s reduced rights issue.
