UK mortgage lender Bradford & Bingley took a 94 million pound ($183 million) write-down on its exposure to risky assets and saw other big one-off losses derail profits and send its shares to a record low.
B&B shares tumbled over 17 percent on Wednesday after Britain's biggest buy-to-let mortgage provider said 226 million pounds of one-off charges would cut its 2007 profit to 126 million pounds, from 247 million the year before.
It became the latest bank to suffer the fallout from the troubled US sub-prime housing market and global credit crunch, which has cut the value of assets held in complex financial vehicles and forced banks to mark down their worth. As the first UK bank to report on 2007 it added to jitters ahead of results from the bigger banks in the next three weeks.
B&B unveiled a bigger-than-expected impairment on assets in structured investment vehicles (SIVs) of 64.2 million pounds and on its holdings on collateralised debt obligations (CDOs) of 30.2 million pounds.
Some analysts were critical the bank did not warn investors about the scale of the write-downs, and said there was also a risk of further losses in complex structured products.
Investors were also unsettled by a 58 million pound loss on the sale of two property portfolios sold last year, and a fair value adjustment on treasury instruments of 50 million pounds. Analysts had expected some write-downs and other losses, but Cazenove said its forecast for exceptional items had been 67 million pounds, less than a third of the reported figure.
By 1233 GMT B&B shares were down 17 percent at 201 pence, after falling as low as 200.25p, their lowest level since the bank floated just over 7 years ago. The shares have halved since the end of July, cutting the bank's value to 1.3 billion pounds.
"On the negative side, we see continued margin pressure, low-quality and pedestrian other income, a strong rise in credit impairments, and heavy treasury and fair value write-downs," said James Hutson, analyst at Keefe, Bruyette & Woods. Shares in Alliance & Leicester fell 5 percent and other banks were weak as analysts said the deterioration in B&B's assets could see others soon increase writedowns.
FUNDING SECURE: More positive was news B&B has secured its funding through this year, strong residential lending volume and improving cost efficiency, Hutson said in a note.
B&B said it had lined up 2 billion pounds of medium-term facilities to finance its business into 2009. A funding crisis at Northern Rock five months ago stoked concern that other UK banks could face problems, but Chief Executive Steven Crawshaw said B&B was well positioned from a funding and liquidity position.
Residential lending balances rose by 27 percent to 39.4 billion pounds, and it took a net UK mortgage market share of 7.7 percent, more than double its traditional share.
Crawshaw said he was confident the buy-to-let segment would outperform a slowing broader housing market. The tougher housing market increased the number of loans three months or more in arrears to 1.63 percent in 2007 from 1.3 percent in the year before.
B&B's net interest margin fell to 1.1 percent in 2007, down from 1.19 percent in 2006 but in line with analysts' forecasts due to increased funding costs. There is likely to be a "single digit" percentage point drop in margins this year, Finance Director Chris Wilford said. B&B said its 2007 underlying pretax profit of 351.6 million pounds, up from 336 million in 2006 and ahead of an average forecast of 347.3 million from 19 analysts polled by the bank.
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