Bradford & Bingley: When the bankers met the Treasury

[Legal Beagles]

The chancellor asked the banks how would they feel about taking over the ailing buy-to-let lender B&B

More...

[Amethyst]

Re: Bradford & Bingley: When the bankers met the Treasury

Bradford & Bingley: The scramble to find a buyer

• Jill Treanor and Larry Elliott
• guardian.co.uk,
• Sunday September 28 2008 19:43 BST
• Article history

It is not the way the bosses of Britain's biggest banks normally spend their Saturday mornings. But this weekend the golf clubs were left in the garages as John Varley, the Barclays chief executive, and his counterparts from Britain's biggest banks trooped in to the Treasury for a 9am meeting with Alistair Darling. Some of the bank execs were conferenced in as they were based too far from London to attend in person.
As the haze lifted off St James's Park, which backs on to the Treasury, the message from the government was simple; a solution to the sorry saga of Bradford & Bingley needed to be found before the financial markets opened in London 47 hours later.
Darling had already briefed Gordon Brown on the crisis at B&B after the prime minister had touched down at Heathrow from his visit to Washington and New York. The chancellor was now asking the banks how would they feel about taking over the ailing buy-to-let lender B&B. Darling, assembled Treasury mandarins and the government's financial advisers from Morgan Stanley were disappointed but hardly surprised by the answer: thanks, but no thanks.
Count us out
None of the bankers gathered around the table and patched into the conference call were ready to mount a full-blown rescue takeover. Eric Daniels, the chief executive of Lloyds TSB, was barely a week into the emergency takeover of mortgage lender HBOS. Another deal, even one as small as B&B, would be too much to ask. Varley and his team at Barclays were also busy with their international expansion plans on Wall Street after taking over parts of the collapsed Lehman Brothers.
That left Darling and his advisers to put most of the pressure on HSBC, Royal Bank of Scotland and the Spanish group Santander - which as well as owning Abbey is in the throes of taking over Alliance & Leicester. HSBC, which had also been sounded out about taking over HBOS a week ago, was reluctant to bail-out B&B, which despite its 200 branch network was not attractive enough for HSBC chief executive Michael Geoghegan to seriously contemplate. He is not thought to have been present at the early meeting but was contacted later.
RBS also had better things to do with its time than take over B&B. Relieved that the spotlight had been on HBOS, its near-neighbours in Edinburgh, the bank's chief executive Sir Fred Goodwin knew he would find it impossible to convince his shareholders of any strategic fit with B&B. Strapped for cash despite having raised £12bn in the biggest ever rights issue in the City, it would be too much to stomach for the bank.
That left Santander which has so far weathered the financial storm well. But it too was reluctant to bid for B&B outright. In the midst of taking over A&L, the bank's irrepressible chairman Emilio Botin had bigger fish to fry - a potential takeover of ailing US bank Wachovia. Represented by Abbey's UK boss Lord Burns, who as Treasury permanent secretary during the 1992 sterling crisis knows a thing or too about emergency meetings at No 1 Horse Guards Road, Santander was less willing to buy B&B than the Treasury had hoped.
A public-private deal?
With the possibility of a private rescue all but dead, it was time for the Treasury to activate Plan B. The writing had been on the wall for the former building society for some time and Whitehall had spent months preparing its contingency plan. Ministers could sense there was going to be little appetite to swallow up B&B – a small bank with little strategic significance – lock, stock and barrel but thought there might be takers for a part-public, part-private deal.
Under this plan, the public sector would take control of B&B's mortgage book and a commercial bank would take over the deposits from savers. It was not ideal; it was not what ministers would have preferred; but last night the sense in Whitehall was that it was the best that could have been obtained in the circumstances.
Those circumstances were the real fear that last week's calamitious collapse fall in B&B's share would prompt the bank's customers to start withdrawing their funds. A repeat of the Northern Rock fiasco - avoided a fortnight ago at HBOS - was the last thing Darling wanted.
Discussions about a long-term solution for B&B had been under way ever since B&B announced a £400m capital raising in May. The fundraising was a disaster and the six major banks - Barclays, HSBC, Royal Bank of Scotland, HBOS, Lloyds TSB and Abbey, owned by Spain's Santander - had been forced by the Financial Services Authority to take huge share stakes in the lender to keep it afloat.
The FSA had already been holding regular updates about the lender but on Friday night Darling and his advisers stepped up the pace. With Tom Scholar, managing director of international and finance at the Treasury, taking charge of the negotiations, the bankers realised that the stakes were being raised. When the Treasury rather than the FSA takes the lead in negotiations, it means a problem has turned into a crisis, because only Darling can sanction the use of public money in a bail-out.

[Amethyst]

Re: Bradford & Bingley: When the bankers met the Treasury

Top-level talks over Bradford & Bingley are continuing ahead of the Treasury announcement that the troubled mortgage bank is to be nationalised.
B&B is in discussions with the so-called Tripartite Authority - the Treasury, Financial Services Authority and the Bank of England - over the potential bail-out. In an attempt to try to avoid a rerun of the Northern Rock debacle the Government plans to hold an immediate fire sale to sell off B&B’s assets to one or more banks, and although the Treasury would only say that discussions were “ongoing”, an announcement will come later tonight or early tomorrow morning before the Stock Exchange opens.
Although the Financial Services Authority had been trying to find a single white-knight bidder to take over B&B’s loans in their entirety, Britain’s big banks refused to get involved. The Spanish banking giant Santander is in talks about its potential role in the rescue, with HSBC also possibly featuring.
Alistair Darling, the chancellor, had been keen to try to avoid an expensive takeover that would cost the taxpayer billions. It is understood that most of B&B’s £50 billion of loans, including £42 billion of home mortgages, will not be sold and will be nationalised on a long-term basis. Discussions are now understood to focus on breaking up the bank and selling its assets to other banks - the government has been lining up bidders for B&B’s £20 billion of retail deposits and 197 branches.
Related Links

• Q&A: Are my savings with Bradford & Bingley safe?

• Bradford & Bingley: political reaction

• Bradford & Bingley's final moments

Tony McGarahan, a spokesman for B&B, said late last night that talks were taking place and an announcement would be made before the stock market opened tomorrow.
“We can assure customers that their deposits are safe with Bradford & Bingley,” he said.
Gordon Brown, who met President George Bush in Washington on Friday as the United States wrangled over its own economic crisis, returned to Britain yesterday to be briefed on the B&B situation by Mr Darling, who stayed in London to help oversee the latest blow to the banking system.
B&B has been hit hard by fears that its portfolio of buy-to-let and self-certified mortgages will generate huge losses as the credit crunch begins to bite and house prices fall.
The bank’s shares have fallen more than 93 per cent in the past year, closing a further six per cent down on Friday at just 20p. It is now valued at £290m, compared with £3.2 billion at its peak.
Talks have accelerated because of fears there could be a run on the bank tomorrow - B&B lost £800m of deposits in June and July.