Bradford & Bingley, the mortgage bank whose credit rating was last week downgraded to just a single notch above junk-bond status, yesterday claimed it was confident that it could remain independent despite its vulnerabilities in the current financial climate.
B&B is the latest lender at the centre of market rumours, with widespread speculation in recent days it might be forced to sell up to a larger player in order to ride out the credit crisis.
It is understood that the Financial Services Authority has drawn up contingency plans in the event of B&B's fortunes taking a turn for the worse and that the regulator has already held preliminary discussions with banking groups that might be prepared to buy the lender should it be subsumed by the crisis.
Those contacted by the FSA include two of the banks considered as candidates for a rescue of HBOS before its tie-up with Lloyds TSB last week – HSBC and Santander of Spain. Several other banks are also reported to have spoken to the regulator.
However, B&B insisted that it was not currently engaged in talks with anyone about a takeover or merger.
"We are not aware of anything in connection with these banks," a spokesman said. "Our funding foundations are solid and well capitalised."
A spokesman for the FSA also refused to comment on the suggestion that the regulator was brokering the sale of B&B. Privately, however, senior officials at the watchdog argue that they would face huge criticism were B&B to run into trouble only for it to emerge that the FSA had not thought about potential solutions and acted upon them.
B&B is an obvious cause for concern for regulators – like HBOS, it has been forced to raise money this year, and it is also exposed to mounting bad debt as UK mortgage arrears increase. The lender's problems have been amplified by an increase in funding costs on the wholesale money markets and it made a £27m loss in the first six months of the year.
Bradford & Bingley raised £400m of new capital earlier this year from leading shareholders, but only after two previous fund-raising proposals fell through at the last minute. The bank also lost its chief executive, Steven Crawshaw, just as it was trying to raise money. Mr Crawshaw was forced to step down due to ill-health.
Despite its problems, however, Richard Pym, B&B's new chief executive, has told staff that the mortgage lender does have a viable future as an independent entity. Under Mr Pym, the bank is focusing its efforts on building retail deposits, a strategy that it has little choice but to pursue with wholesale lending markets in their current state.
The decision by Moody's to downgrade B&B corporate bonds last week will add to the need for B&B to increase the sums it raises from retail depositors to finance its mortgage lending activities.
B&B has also been tipped as a possible target for Resolution, the financial restructuring venture run by Clive Cowdery, which plans to raise £1bn later this year as the seed capital for a string of acquisitions in banking and insurance. Mr Cowdery offered to co-ordinate a £400m takeover of B&B earlier this year, acting in concert with several of its leading shareholders.Reuse content