Regulators and politicians were in talks over the future of troubled lender Bradford & Bingley on Saturday, raising the prospect that a second British bank could be nationalised.
B&B shares tumbled to a record low on Friday and the cost of insuring its debt jumped, prompting regulators to step up efforts to find potential white knights for the bank, hit by the credit crunch and Britain's sliding housing market. The Financial Services Authority (FSA) and Treasury officials were meeting over the weekend to discuss rescue options, two people familiar with the matter said.
"The Treasury, the FSA and the Bank of England are working closely with Bradford & Bingley to consider the implications for their business of the recent financial turmoil," a Treasury spokesman said.
The Treasury said an announcement would be made before markets open on Monday. "A whole range of options are being looked at," a person familiar with the talks said, adding that nationalisation could not be ruled out. Talks were going on between the Treasury, FSA, Bank of England and "banks", the source said.
Major banks were last week sounded out about rescuing the lender, but none were keen to take on its lending book at a time of weakening house prices, industry sources have said.
One option is to arrange a "lifeboat rescue", where all the major lenders would take a share of B&B's mortgage book to help shore up confidence in the financial system. Britain's top five banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS - and Abbey's Spanish owner Santander already own about 30 percent of B&B between them after they stepped in to help save a rights issue that flopped in June.
ROCK SPECULATION But a reluctance among rivals for a rescue deal has increased the prospect the lender could be nationalised and merged with Northern Rock, the bank that was taken over in February after the government failed to find a rescuer. Saturday's Daily Telegraph, quoting unnamed sources, said B&B would have to be nationalised in the coming days.
The financial crisis and weakening economy have heaped pressure on British Prime Minister Gordon Brown, whose party lags the opposition Conservatives in the opinion polls. Conservative leader David Cameron called on Saturday for legislation to give greater protection to savings. "We also need to give the Bank of England greater powers to step in and save failing banks," he told reporters.
Finance Minister Alistair Darling is expected to be closely involved in the talks. He has a range of powers to use for any bank in trouble, including bringing it into public ownership or transferring it to another commercial bank.
B&B's shares fell to an all-time low of 16.5 pence on Friday and ended at 20 pence, valuing it at under 300 million pounds ($551.5 million), as fears about its future mounted. The concerns have raised the cost for B&B to raise funds in wholesale markets, although B&B said it is fully funded into next year and has one of the strongest core equity Tier 1 ratios of any British bank. "We do not comment on speculation in such a febrile environment," a spokesman for B&B said on Saturday. The FSA declined comment.
There is concern that borrowers of B&B's higher risk mortgages, including buy-to-let and self-certification loans, will default at a faster rate than average mortgages and burn through the equity on its balance sheet. The worries about its health will also hamper a strategic plan unveiled by new Chief Executive Richard Pym, which aims to make the bank more reliant on retail deposits.
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