Bradford & Bingley may suffer Northern Rock’s fate

Earlier today I highlighted a number of banks that were under severe selling pressure in their respective home markets. This list included Fortis, Macquarie, NCC, Wachovia and CIT. The UK’s Bradford & Bingley is certainly on that list as well.

In fact, the British daily “The Telegraph” is openly speculating whether B&B will be nationalized. Given the drop in confidence of creditors, this a likely outcome. European politicians like Germany’s Peer Steibrueck should avoid schadenfreude as they look at the mess in the U.S. because Europe is next.

Bradford & Bingley’s future looked increasingly uncertain as the City regulator searched for a white knight for the stricken bank.

But there was a growing view among bankers that B&B will be nationalised and knocked together with Northern Rock.

Sources said the Financial Services Authority had stepped up its search for a large bank which could step buy B&B. Alternatively, it may put pressure on the six high street banks which supported B&B’s £400m rights issue in June to form a “lifeboat” to buy it outright.

They were HSBC, Lloyds TSB, HBOS, Barclays, Santander’s Abbey and Royal Bank of Scotland.

One source said: “We could be supportive if a lifeboat is required”. But others said they did not want to buy any more of B&B. This would leave nationalisation as B&B’s only realistic option, sources said.

Such a move would bring stability to the banking sector, according to Tim Sykes, a banking analyst at Execution. “Bradford & Bingley is not viable in its current form. It should be nationalised. At the moment B&B poses a risk to the system but [nationalisation] would sow the seeds of the end of the crisis,” Mr Sykes said.

B&B’s shares closed down 1¼ to 20p. B&B has said funding is in place until into 2009.

Mr Sykes’ comments came after Jonathan Pierce, banks analyst at Credit Suisse, said it was “increasingly untenable” that B&B would survive as an independent entity.

The alternative to nationalisation would be a sale or a “lifeboat” made up of several bigger banks, which would jointly own B&B.

B&B has been downgraded by ratings agencies to one notch above junk. That makes it more difficult to issue preference shares and other instruments, bankers said.

A spokesman for Bradford & Bingley said: “We are fully-funded and we are one of the stongest capitalised banks in the UK.

“As far as the febrile speculation goes, we do not comment on market rumours.”

See credit crisis stories on Bradford & Bingley here.

Previous posts on B&B
Bradford & Bingley is being shopped by the FSA
Random Musing: 23 Aug 2008 – UK mortgage crunch
B&B gets its money, HBOS and Barclays don’t
B&B secures private equity rescue funding
Bradford & Bingley to issue profit warning

Source
Bradford & Bingley nationalisation looks increasingly likely – The Telegraph