B&B plunges into £27m loss as bad debts mount

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The Independent Online

Compounding a dreadful year so far, Bradford & Bingley revealed yesterday that it had plunged into the red during the first six months, following rising bad debts, a string of writedowns and losses on investments.

The beleaguered banking group posted losses of £26.7m for its first half, mainly from losses on treasury assets, compared with a profit of £180.4m in the corresponding period last year.

B&B was forced to write down £155m, while bad debts rose from £5.3m last year to £74.6m. Collins Stewart analyst Alex Potter said: "B&B results were little short of appalling but this was expected."

Chairman Rod Kent, who has led the group since chief executive Steven Crawshaw quit citing health problems, said the results "are, of course, disappointing".

He added: "In the light of the turbulence in the banking and housing sectors, the first six months of this year have been very challenging for B&B." This has included the rights issue process and the search for a new chief executive.

B&B said its buy-to-let loans business – 60 per cent of its book – is doing "pretty well" and there was good news as it renegotiated its mortgage acquisition agreements with Kensington, lowering what it will spend on mortgage portfolios. B&B is also renegotiating another deal with GMAC-RFC.

Arrears at the group continued to rise. For the remaining outlook, the group predicted: "In the light of continuing weakness in the housing market and the wider economy, we continue to expect arrears and repossessions to increase for the remainder of the year, although we will be putting further resources into tackling the problem."

Mr Potter of Collins Stewart said: "Looking forward, guidance is for margins to continue falling and arrears to continue rising. Earnings outlook is therefore very weak ... management have few levers to pull, we fear." Paul Measday, analyst at Cazenove, said: "We provisionally expect B&B to report a loss for 2008. As the loan book shrinks and credit quality deteriorates, there is a risk the group remains unprofitable into 2009."

Richard Pym, the former head of Alliance & Leicester, formally took control 10 days ago. Mr Kent said Mr Pym "will review our plans to enable us to continue to operate effectively".

While it was too soon for an announcement regarding the group's strategy yesterday, Mr Pym is expected to present plans for the business in the autumn, the time of the third quarter interim management statement.

The bank stressed that in the wake of its capital raising, its position has stabilised and is now "one of the best capitalised banks in the UK". The rights issue itself was described as "tortuous" by chairman Kent.

B&B announced it would carry out a rights issue in May. Shortly after, it admitted it was to sharply discount the raising from 82p to 55p and bring in private equity house TPG.

B&B fought off a rival proposal from Clive Cowdery's Resolution to the fury of investors, before a downgrade from ratings agency Moody's prompted TPG to walk away. The plan was saved as four shareholders agreed to pick up 14 per cent of rights. When the issue closed this month, with the shares around the rights price, only 28 per cent of investors chose to invest, leaving the rump with underwriters Citigroup and UBS.

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