UK bank B&B sinks to H1 loss, bad debts worsen
LONDON (Reuters) - Troubled UK lender Bradford & Bingley BB.L sank to a first-half loss, hit by 155 million pounds ($283.8 million) in writedowns and investment losses, and said bad debts had risen more than half since the end of 2007.
Britain's biggest lender to landlords warned on Friday that conditions would continue to worsen through 2008 as margins fall.
But it gave investors some good news, announcing it had renegotiated one of two contracts that have seen it forced to acquire a large number of loans during 2008 and 2009. It is also in talks to overhaul a deal with GMAC-RFC that has fuelled arrears.
The mortgage lender -- which took a 74.6 million pound bad debt charge due to rising arrears, falling house prices and mortgage fraud -- posted a pretax loss of 26.7 million pounds. That compares with a pretax profit of 180.4 million a year ago.
Excluding a 127.8 million pound writedown on investments, losses on structured investments and some gains on debt, underlying pretax profit for the first half of 2008 totalled 70.2 million pounds, still less than half the year ago number.
The writedowns and losses combined add up to almost half the cash raised by B&B in an emergency 400 million pound ($732 million) rights issue completed earlier this month.
"The core of Bradford & Bingley is a very solid business. Only where we have stretched credit criteria have we had a problem, and we will not do that again," the bank's new chief executive, former Alliance & Leicester boss Richard Pym, said.
"2008 and 2009 are obviously going to be tough years but beyond that we are ... well capable of riding out the current storm," said Pym, who is due to outline his vision for B&B in October.
B&B shares, which have lost 80 percent of their value since January, were trading down one percent at 1040 GMT, at 49.75p.
"Every aspect of the business is tough -- arrears are rising, the average mortgage life is lengthening so they are not able to get new customers on at more economic margins, they are having to battle for retail deposits," analyst Mike Trippitt at Oriel Securities said. "It is going to be a slow slog for them."
BAD DEBTS WORSEN
B&B's mortgage book, more than half of which is made up of loans to landlords in the so-called buy-to-let sector, has been closely watched by investors looking for evidence of worsening arrears across the UK market, as property prices fall and consumers come under pressure from rising bills.
The bank said on Friday that the number of mortgages three or more months in arrears across its book worsened to 2.29 percent from 1.48 percent at the end of December.
In its acquired book -- which includes loans taken on from finance firm GMAC and which B&B has pinpointed as its problem area -- arrears jumped to 5.11 percent from 3.04 percent.
But the bank also showed a deterioration in organic arrears, where the total rose to 1.78 percent from 1.2 percent. Organic loans in buy-to-let, which the bank said remained a resilient business, almost doubled, though they remain below the average. The bank said it was too soon to "call a trend" on buy-to-let. Continued...
