UK set to nationalize B&B bank, may sell savings

LONDON (Reuters) - Britain's government will nationalize troubled mortgage lender Bradford & Bingley BB.L and is discussing the sale of its savings book and branches, people familiar with the matter said.

The BBC reported on Sunday that Bradford & Bingley's savings business will be transferred to Spanish banking giant Santander (SAN.MC). A Santander spokesman could not confirm the report.

The Treasury is leading talks on the rescue of the bank and on Sunday said discussions were continuing. Full details of the plan were not expected to be announced on Sunday, but would be made by finance minister Alistair Darling before Monday's market opening, a person familiar with the talks said.

The Treasury would nationalize all of B&B under emergency legislation it introduced when it took control of Northern Rock in February.

The bank's 24 billion pound ($44 billion) deposit book and its 200 branches would then be immediately sold to a commercial bank if the government could strike a deal, the source said.

Santander, which owns Abbey and is in the process of buying Alliance & Leicester ALLL.L, was in talks about possibly taking over deposits and branches, industry sources said.

The government would have preferred a private-sector rescue for Britain's ninth-biggest mortgage provider, but rivals appeared unwilling to come in as a "white knight" amid a global credit crisis and weakening British housing market.

The government this month brokered the takeover of HBOS HBOS.L, Britain's biggest home lender, by rival Lloyds TSB (LLOY.L) and is stepping in again.

"We are very clear that depositors and ordinary savers must be properly protected and they will be as part of the arrangements we will set out," Treasury Minister Yvette Cooper told the BBC.

She said the government was aiming to provide financial stability to all the banking system.

In the United States, legislators tried to finalize a $700 billion government-backed financial industry rescue plan while Belgian-Dutch financial group Fortis (FOR.BR) faced a takeover or break-up and emergency talks about its future intensified.

B&B and Fortis were the latest banks to be hit by the global financial crisis, sparked by losses on poor-quality U.S. home loans and which has claimed several high-profile victims in the United States and Europe.

The crisis and Britain's weakening economy have added to pressure on British Prime Minister Gordon Brown, whose party lags the opposition Conservatives in opinion polls and whose leadership has been questioned by some in his own party.

BRANCHES COULD BE SOLD

Rivals are reluctant to take ownership of B&B's book of 41 billion pounds in residential loans -- representing 3.4 percent of British mortgages. Many of the loans are higher-risk buy-to-let and self-certified mortgages and the British housing market is weakening, raising the prospect of rising bad debts.

B&B's fall would be a further blow for borrowers and make it harder to get specialty loans as banks scale back bank lending, especially for riskier products.

It would also mean all the building societies that were demutualised in the late 1980s and 1990s, including Abbey, Woolwich and Northern Rock, have been taken over or rescued.

A spokesman for B&B said: "We can confirm we are working with regulatory authorities to bring clarity to the bank's future." He said customers' savings were safe.

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.

Its shares closed on Friday at 20 pence, valuing it at less than 300 million pounds.

Britain's top five banks -- HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), Barclays (BARC.L), Lloyds TSB and HBOS -- and Santander already own more than 20 percent of B&B among them after they stepped in to help save a rights issue that flopped in June.

(Additional reporting by Adrian Croft; Editing by Paul Bolding and Maureen Bavdek)