The credit crunch takes another victim, The Bradford and Bingley. Bradford and Bingley was formed in 1964 after a merger between the two building societies both founded in 1851 – Bradford Equitable Building Society and Bingley Permanent Building society.
Why Bradford and Bingley Needed Bailout
Since becoming a bank in 2000, it changed its business model from the traditional lender into an aggressive commercial bank.
- It was happy to lend to ‘risky’ customer, self certification, buy to let e.t.c. It is these customers most exposed from the current decline in the housing market.
- It also raised money for mortgage finance on the international money markets. This allowed it to expand quickly – becoming 8th largest mortgage lender.
It is this second aspect of its business plan which caused into run into great difficulties. This year, it has struggled to raise enough finance because of the tightening of the credit markets (a similar problem faced by Northern Rock). The reluctance of other banks to lend to Bradford & Bingley was increased when its credit rating dropped.
This year, June, it launched a share rights issue to try and raise finance, but, it was under subscribed leaving the company looking vulnerable and exposed. Its decline in the share price has been dramatic
The government has decided to nationalise the bank, it will sell off the savings section, leaving it in control of the mortgage sector. This leaves a balance sheet of £50 billion in mortgage loans.
If Bradford and Bingley is merged with Northern Rock, the government (and therefore taxpayer) will be liable for a total of £150bn mortgages. It will make the government ‘super bank’ or ‘toxic debt bank’ as the second biggest mortgage lender.
Top 10 Mortgage companies (will need updating at end of credit crunch)
2 comments ↓
[...] Nationalisation of Bradford & Bingley. This makes the government the second biggest mortgage lender with over £150bn worth of mortgage securities (an average of £5,500) per tax [...]
Once again another very interesting article, this is actually the first time that I have heard of these mortgage lenders and it was interesting to see how they started.
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