UPDATE 1-Britain nationalises Bradford and Bingley

Mon Sep 29, 2008 4:08am EDT

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(Rewrites following Treasury statement)

By Steve Slater and Sumeet Desai

LONDON, Sept 29 (Reuters) - Britain nationalised Bradford & Bingley BB.L on Monday, making the buy-to-let mortgage lender the second bank to be taken into public ownership this year as a deepening financial crisis claims more victims around the world. After intense weekend talks failed to find a completely private sector solution, the Treasury said it would take over B&B's mortgage portfolio and sell its branches and deposits to Spanish bank Santander (SAN.MC), which owns domestic rival Abbey.

"To pretend that somehow there was some other solution, unnamed, unspecified -- it seems to me to be clutching at straws. You needed to take decisive action. That's what we've done," finance minister Alistair Darling said on BBC Radio.

The government will take over B&B's 50 billion pounds ($92 billion) worth of mortgages and Santander gets the 20 billion pound savings and branch network following the rescue deal.

B&B, with its heavy exposure to Britain's slumping housing market, is only the latest victim of a global banking crisis that has felled some of the world's largest financial institutions in the last few weeks.

Benelux financial group Fortis FOR.BR also underwent a part-nationalisation on Sunday. In the United States, the administration is putting together a $700 billion bailout package to buy up banks' toxic assets to prevent more failures.

Santander is paying some 400 million pounds for B&B's 200 branches and deposit portfolio while the government will take over the mortgage assets, meaning it should be business as usual for the troubled lender's customers.

While the public takeover puts even more risky assets on to the government balance sheet only seven months after the nationalisation of Northern Rock bank, which had the same funding model as B&B, Darling said the risk would be borne by the banking industry.

The Treasury said the Financial Services Compensation Scheme, which is funded by the banks, was triggered on Saturday because B&B was unable to meet its funding obligations.

The scheme had to pay out 14 billion pounds to enable B&B's retail deposits be transferred to Abbey Santander and the Treasury has provided that money. It will have to be repaid by banks if B&B's remaining assets fall short.

"Through the statutory compensation scheme, if there's a shortfall then they meet that liability so the taxpayer interest as well as security for savers as well as the wider need to maintain financial stability is being looked after,"Darling said. (Writing by Sumeet Desai; additional reporting by Matt Falloon, Kate Kelland and Myles Nelligan; Editing by Paul Bolding)

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