B&B sheds 370 jobs as future looks uncertain

Sep 26 2008 by Iain Laing, The Journal

STRUGGLING mortgage lender Bradford & Bingley is cutting 370 jobs in a crackdown on costs as speculation on its future grows.

The company, which has 3,000 staff, said the bulk of the job losses will come with the closure of its mortgage processing centre in Hertfordshire, which employs 300 people. The rest will be sales staff and branch-based mortgage advisers.

The move comes after B&B posted losses of £26.7m in the first half of the year, as the buy-to-let specialist is buffeted by credit crunch losses and rising arrears.

The firm hopes to save £15m a year through the moves as it seeks to rein in mortgage lending following a year of turmoil for the business.

B&B warned that further cuts were to come following a review of its head office in Bradford, although it is adding 70 staff to its arrears- collecting division in anticipation of more homeowners struggling to keep up with repayments.

New chief executive Richard Pym said: “We are a strongly capitalised bank now undertaking a complex transition with regrettable job losses, but are planning to put the problems of the past behind us and have a business which is fit for purpose going forward.”

To shore up its balance sheet, B&B has also rid itself of the “toxic” mortgage-backed investments and complex financial instruments which have been hit by the credit crunch.

B&B’s shares fell 10% yesterday amid more gloom over its prospects from City analysts, and have slumped more than 90% during the past year.

As well as rising mortgage arrears, the lender’s funding costs have increased because of downgrades from investment ratings agencies as concerns about the business grow.

At the end of June, B&B held total customer deposits of £24.5bn but its plunging share price has given it a stock market worth of just £330m.

The Financial Services Authority was said last weekend to have sounded out three major international banks over a potential takeover of B&B, although there appears to be little appetite for a takeover.

Jonathan Pierce, at Credit Suisse, said B&B’s higher-than-average mortgage arrears rates and exposure to falling house prices meant the chances of any bigger bank playing a willing white knight takeover role was unlikely.

That left a managed acquisition by a bigger group, he said, or direct intervention from the Government as the probable alternatives.

Mr Pierce said: “The form of any potential resolution is unclear. Ultimately B&B’s biggest issue is asset quality and we doubt any major bank will want exposure to a £40bn mortgage portfolio with arrears almost double the industry, and where more than 40% of loans will be in negative equity if house prices fall 30% peak-to-trough, on our estimates.

“That would leave three other options. Go it alone – in our view, increasingly untenable – direct regulatory intervention, or a managed acquisition by other institutions likely at the cost of equity holders.”

Government intervention over B&B need not be another Northern Rock style bail-out, commentators have mooted, with its riskiest loans being taken off its hands a potential option.