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UPDATE 2-UK lender B&B cuts costs, sells toxic assets

(Recasts, adds analyst reaction, background, updates share price)

LONDON, Sept 25 (Reuters) - UK lender Bradford & Bingley Plc BB.L is cutting 370 jobs in an economy drive as the specialist mortgage lender battles the credit crunch and a sharp slowdown in Britain's housing market.

The group also said on Thursday it had sold all its problematic mortgage-related derivatives, yet its shares slumped to a new low on worries about its funding position.

B&B said the job cuts would reduce annual expenses by 15 million pounds ($27.9 million) in an austerity drive that would generate one-off costs of 14 million pounds.

By 1355 GMT, B&B shares were 12 percent lower at 22 pence, having traded as low as 21.75p, their lowest since the former building society’s stock market listing in 2000. The bank now has a stock market value of about 332 million pounds.

“They’re doing the right thing,” said Numis Securities analyst James Hamilton. “When you’re at the top of Everest in a bathing costume, the right thing to do is to huddle into a ball. But that doesn’t mean you’re going to survive.”

The bank, seen as vulnerable to the credit crunch because of its high dependence on expensive wholesale funding, said it had sold all the remaining mortgage-backed securities it held in its Treasury division.

The securities -- collateralised loan obligations, collateralised debt obligations and structured investment vehicles -- had fallen steeply in value as a result of the U.S. sub-prime mortgage crisis, triggering hefty writedowns.

B&B is incurring a further loss of 50.8 million loss on the disposals, the bank said.

“The changes we have announced today focus the business as a strong savings bank, reduce the size of our lending activities and increase our capacity in arrears collection,” B&B Chief Executive Richard Pym said.

TAKEOVER TALK

B&B, which specialises in lending to landlords in the so-called “buy to-let” market and in self-certificated mortgages, has been hit by a jump in funding costs as the credit crunch pushed up the cost of wholesale borrowing.

It is also facing rapidly rising debt arrears as the UK property market weakens.

In June, the bank raised 400 million pounds in an emergency rights issue that had to be overhauled twice, first after a profit warning and then because of a credit rating downgrade.

According to press reports, the UK Financial Services Authority has sounded out potential buyers of the group amid doubts over its long-term prospects as an independent bank.

The FSA has declined to comment on the reports, while B&B has said it is not in takeover talks.

The bulk of the targeted job losses will be achieved through the closure of B&B’s mortgage processing centre in Borehamwood near London, leaving the bank with just one mortgage office in its home town of Bingley, northern England.

The latest measures form part of a strategic overhaul launched by Pym, the former head of Alliance & Leicester who was appointed as B&B’s CEO in August two months after his predecessor Steve Crawshaw stepped down for health reasons.

Analysts at Keefe, Bruyette & Woods said the shake-up could make B&B more attractive to potential buyers.

“Given the abundant talk in the market this week of an imminent take-out, the slightly cleaner bank does make this outturn a little more plausible,” they wrote in a note. (Editing by David Holmes)

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