Treasury to nationalise B&B bank

Parts of B&B are set to be sold on to another bank by the Treasury

Troubled bank Bradford & Bingley is to be nationalised, the BBC has learned.

Officials from the Treasury and the Financial Services Authority (FSA) have been in talks with executives from the bank in a bid to secure its future.

BBC business editor Robert Peston says the Treasury will then speedily sell B&B's 200 branches and its savings business to a bank or number of banks.

B&B told savers deposits were safe and Treasury minister Yvette Cooper said they would be "properly protected".

Ms Cooper told the BBC One Politics Show that negotiations were still ongoing, but the chancellor would make a statement before the markets opened on Monday.

"We've been very clear that the priority is to make sure that depositors, that ordinary savers, are properly protected, but also that we can support the financial stability of the banking system as a whole."

B&B's share price plummeted to a record low last week.

Minister promises financial help

Bank spokesman Tony McGarahan said: "We can assure customers that their deposits are safe with Bradford and Bingley."

The British Bankers Association is unhappy at some aspects of the plan.

Association chief executive Angela Knight told BBC Five Live she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.

"The financial services industry underpins, not just the UK economy, but indeed all of us individually, and there can be times where authorities have to step in," she said.

She said it was a "very great shame that it's got to this place".

But our business editor said B&B was getting "perilously close to a funding crisis... there had to be a solution".

Conservative leader David Cameron said nationalisation should be a last resort. He told the BBC the Tories would not sign "blank cheques" for the taxpayer to bail out failing institutions.

But John McFall, chairman of the Commons Treasury Select Committee, told the BBC: "We have to make a decision - do we take it [B&B] into the state, or do we play Russian roulette with people's jobs and homes?

"I know what I'd prefer."

Loans nationalised

B&B's share price has plummeted and it has announced plans to cut 370 jobs due to a downturn in the mortgage market.

A year ago its share price was 300 pence, but has now sunk to 20 pence.

HAVE YOUR SAY Why don't they have the sense to nationalise the things that matter - Water, Electricity, Gas, Railways etc, etc Colin, Plymouth, UK Send us your comments

The bank will be nationalised using special legislation the Treasury put through when it took Northern Rock into public ownership earlier this year.

Possible buyers interested in acquiring parts of B&B could include Santander of Spain, HSBC and Barclays.

Santander, which already owns Abbey and Alliance & Leicester, has been looking at B&B for some time.

The nationalisation and break up of Bradford & Bingley will represent a momentous event in the history of British banking Robert Peston Robert Peston's blog Town reacts to bank news

B&B's £50bn of loans, including £41bn of home mortgages, will not be sold and will be nationalised on a long-term basis. The mortgages may be given to the nationalised Northern Rock to manage.

"The Bradford and Bingley mortgage book is a lower quality book of mortgages, it is a worse asset than Northern Rock," said Charlie Parker, of Citywire.

"It has experienced double the arrears rates of other lenders."

The bank experienced significant withdrawals of cash from its branches and online bank on Saturday amid customer concerns about its situation.

'Less vulnerable

Our business correspondent said the nationalisation of Bradford and Bingley "should be the last of the banking accidents here".

He said there was a class of bank that had relied heavily on the mortgage market - Northern Rock, HBOS, and B&B - and which had now either been nationalised or taken over.

"The remaining banks have much broader bases, they are less vulnerable," he added.

However, B&B's shareholders and holders of its subordinated debt may lose out.

Alistair Milne, a banking expert at Cass Business School in London, said an independent adjudicator might be appointed to decide what the outcome for shareholders should be.

However, one year after Northern Rock collapsed small shareholders there are waiting to see if their shares are worth anything at all.

A team of accountants appointed by the Treasury is making calculations to determine what shareholders in the now-nationalised Rock should receive.

Rating downgraded

Our business editor says the nationalisation and break-up of B&B represents a momentous event in British banking.

We can assure customers that their deposits are safe with Bradford & Bingley Tony McGarahan Bradford & Bingley spokesman

He said: "It will mean that every building society that floated on the stock market in the wave of demutualisations of the past two decades will either have collapsed or been sold to a conventional bank."

B&B was close to seeing a demand from depositors for the return of billions of pounds, which it would have been unable to find.

Credit rating agencies had been downgrading the rating of its covered bonds, a form of funding which involves packaging up mortgages for sale to investors.