Mortgage banks count the cost of endowment mis-selling and cuts

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The Independent Online

Encouraging results from two mortgage banks yesterday were overshadowed by steep job losses and the high cost of earlier mis-selling.

Bradford & Bingley revealed it is setting aside £89.4m, far more than expected, against compensation claims for earlier mortgage mis-selling as the bank unveiled interim results it described as "the best since flotation five years ago".

The provision came a day before data from the Financial Services Authority is expected to show that the amount of compensation paid out for mis-sold endowment mortgages has doubled over the past 18 months to £2.2bn across the industry.

Meanwhile, Banco Santander, the Spanish owner of Abbey, revealed it had cut 1,300 more jobs in the UK this year as part of an ongoing drive to pare costs at the British bank. Abbey now has 5,300 fewer employees than at the time of Santander's £8bn takeover two years ago.

The latest redundancies at Abbey contributed to a 5 per cent reduction in expenses on this time last year. That saw the lender's costs in relation to income - a key measure of efficiency - improve from 63.5 to 56.5 per cent, still some way below its rivals'. But industry experts were impressed by Abbey's slice of the country's mortgage market over the first six months of this year. Net lending - the difference between the amounts lent and repaid - of £4.2bn gave Abbey an 8.4 per cent market share, comfortably better than the 5.8 per cent it commanded in the second half of last year.

Simon Maughan, a senior analyst at Blue Oak Capital, said: "Santander looks to have finally sorted out Abbey's historic mortgage problems. It's no longer behind the curve on product innovation."

Meanwhile, Bradford & Bingley's chief executive, Steven Crawshaw, described the lender's 9 per cent rise in underlying first-half profits to £164.2m as "the best set of numbers this organisation has produced since flotation five years ago".

He blamed the swollen provision for mis-selling claims on B&B's historically independent advice. Recommending products from across a range of providers rather than just one meant B&B itself had to take greater responsibility for later problems. Unlike rivals, B&B was unable to pass part of the cost of compensation on to another company.

"We can't flick these on to a provider because we were independent rather than a tied agent," Mr Crawshaw said. "We wanted to put a line under this. There has been a very steady flow, month-on-month, of new claims arriving. This is intended to be the final provision." Since the end of 2004, B&B has sold products from only one company, Legal & General.

The hefty provision saw shares in B&B fall 13.75p to 449p. However, Mr Crawshaw remained confident about the mortgage market, despite interest rates and unemployment ticking higher. "It's in very strong nick indeed," he said.

Costs were 6 per cent higher at £136.3m, while bad and doubtful debts crept £500,000 higher to £47.7m.