BRADFORD BINGLEY, the embattled UK mortgage lender, has been taken into public ownership after a deal was hammered out with the Spanish bank Santander to buy its £20 billion (€25 billion) deposit book and 197-branch network for £612 million.
The Financial Services Authority, the UK regulator, made the decision on Saturday that BB "no longer met its conditions as a deposit taker". Savers were withdrawing "tens of millions" and BB was finding it difficult to fund itself in the wholesale markets.
As a result, the bank was formally nationalised yesterday and the Financial Services Compensation Scheme - a safety net for consumers when a financial company collapses - moved to ensure BB savers were protected.
The British treasury has structured the nationalisation so that the potential losses to taxpayers are minimised if Bradford Bingley's mortgage loan book suffers rising arrears.
The government has used legal powers it received from nationalising Northern Rock, another British lender, last year, to ensure that the UK's biggest banks, which contribute to the FSCS, will be on the hook to cover unexpected losses from the mortgage book.
Santander is buying £20 billion of retail deposits and, to help facilitate the transfer of BB's savings book to Santander, the FSCS has been given a government loan to pay out £14 billion to Santander because most BB savers are covered by the FSCS scheme.
However, BB also had savers based outside the UK who were not covered by the FSCS scheme and so these will be covered by the treasury, which will pay an additional £4 billion to Santander.
The Spanish bank will also separately take over BB's Isle of Man operation, which had £2 billion of deposits and which is not covered by the FSCS.
As BB's loan book is wound down over time, then the government and FSCS will receive payments in the run down of Bradford Bingley.
These proceeds will be used to repay the government loan.
However, if BB's loan book suffers worse than expected arrears and BB cannot repay the loan in full, the FSCS will then impose a levy on the banking industry to repay any shortfall. Banks will also have to pay interest on the government loan. In a statement, the treasury said it had taken the decision in order "to maintain financial stability and protect depositors, while minimising the exposure to taxpayers. has worked over the weekend to bring about the part public, part private solution which best meets those objectives."
Santander, which owns Abbey and is taking over Alliance Leicester, will have 1,286 branches in the UK and will be able to add £20 billion of retail deposits to its £68 billion retail savings. - ( Financial Times)
