Bradford & Bingley reveals huge losses
Nationalised lender Bradford & Bingley has announced losses of £160 million in the first half of the year but says it is on track to repay its taxpayer loans.
The beleaguered bank, which was taken into public ownership on 29 September 2008, saw its bad debts more than quadruple to £328 million between January and June this year as market conditions remained challenging.
In comparision, Bradford & Bingley posted a £134 million profit the previous year, despite racking up £507 million of bad debts. This was, however, mainly due to gains made from the £612 million sale of its £20 billion deposit book and branch network to Abbey.
Bradford & Bingley says it is now on track with plans to repay the £18.4 billion it borrowed from the Financial Services Compensation Scheme, and the £8 billion from the Treasury, as soon as possible. It claims its £2.6 billion capital buffer will initially absorb the losses and still “repay the taxpayer and creditors in full”.
Richard Banks, managing director of Bradford & Bingley, says: "We are meeting our targets - costs are down, we have reduced lending balances and arrears have stabilised. While looking after taxpayers' interests, we are also helping those customers facing genuine hardship."
Bradford & Bingley’s mortgage book is currently being wound down, dropping from £42.2 billion in the first half of 2008 to £40.3 billion for the first six months of the year.
Banks says the process would continue to be slow as credit conditions remain tight and the number of buy-to-let and self-certified mortgages remains low: "We are constrained by current economic conditions. As the market improves, there will be more mortgage offers out there and people will be more comfortable about selling."
With economic conditions remaining tough, Bradford & Bingley is also struggling to recover funds from some of its borrowers.
The number of repossessed properties has soared from 643 at the end of December to 961 at the end of June. The proportion of people who have missed repayments for at least three also rose to 5.88%, compared to 2.48% for the same period last year and 4.6% at the year end.
However, this was still lower than expected. Banks says: "The level of arrears is certainly below our business plan and the even better news is that over the last three months there has been a stabilisation of arrears."
Bradford & Bingley’s arrears are more than double that of Lloyds Banking Group and three times that of Royal Bank of Scotland.
The lender’s tier one capital ratio stood at 8.7% at the end of June, down slightly from 8.9%. It has not received any further funding from the government.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.