Bradford & Bingley plays down plan to hive off its bad assets

Oct 27 2009 By Iain Laing, The Journal

PART-NATIONALISED Bradford & Bingley is playing down suggestions that it is to divide its £50bn balance sheet into good and bad assets in an effort to speed up the repayment of a £18.4bn loan.

Echoing steps currently being taken by Newcastle-based Northern Rock, the lender is believed to be looking to identify the attractive assets that it can sell to private buyers.

The bank was nationalised in September 2008 to stop it collapsing, with the branches and savings arm swiftly sold to the Spanish bank Santander.

It was closed to new business last September and its mortgage book nationalised with an £18.4bn loan from the Financial Services Compensation Scheme (FSCS). The Government paid the FSCS fee but the financial services industry must cover the sum over time.

In an attempt to speed up repayment, B&B is understood to be looking to split off mortgages that are performing well or are low risk because they have a low loan-to-value ratio, which would be attractive to a buyer.

B&B recently announced its intention to turn itself into a mortgage services firm, in which it would manage mortgages for other banks. There are no plans for it to start lending again.

But a spokesman for the B&B said a similar plan to Northern Rock’s is still a long way off.

The group’s savings business was sold to Abbey and Alliance & Leicester owner Santander a year ago.

The rescue saw the Government lending £14.6bn to the Financial Services Compensation Scheme, which then used the money to bolster the funds that were transferred to Santander along with all the savings accounts and branches.

This was topped up with a further £4.5bn lent directly by the UK Treasury.

The Treasury also plans to split Northern Rock into a good and bad bank so that the good part could be sold to a private buyer.

The plan for Northern Rock is expected to receive the green light from the European Commission this week. However, European competition commissioner Neelie Kroes could impose restrictions on Northern Rock’s ability to write new savings and loan business because of the state aid it has received.