UK government nationalizes Bradford & Bingley

The British government is nationalizing troubled mortgage lender Bradford & Bingley, the Treasury confirmed Monday, taking over the bank's 50 billion pound ($91 billion) mortgage and loan books as turmoil from the U.S. credit crisis spread across Europe.

The sweeping move is intended to preserve financial stability, Prime Minister Gordon Brown told reporters at his Downing Street office.

"We will work night and day to make sure that Britain can come through fairly this downturn," Brown said.

The move comes hours after Dutch-Belgian banking giant Fortis NV was partially nationalized with a 11.2 billion euros ($16.4 billion) rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week. Germany's second biggest commercial property lender, Hypo Real Estate Holding AG, said Monday it had secured a multibillion euro line of credit from several banks, as the financial turmoil in the United States spread further in Europe.

The government has also paid out 18 billion pounds ($33 billion) to facilitate the sale of Bradford & Bingley's savings business, including its entire retail branch network, to Spain's Banco Santander.

Santander, the second largest bank in Europe, said it will be paying 612 million pounds ($1.1 billion) for Bradford & Bingley's 197 branches and 20 billion pounds of deposits.

Bradford & Bingley is the third major British bank to run into trouble since credit crunch began just over a year ago. Northern Rock PLC was nationalized in February, and HBOS PLC sold itself to Lloyds TSB Group PLC on Sept. 18, to stem a sharply falling share price.

Britain's Treasury said that Bradford & Bingley's management team would continue to administrate the lender's mortgage book in the short term.

Over the longer term, banking analysts predict that the government will take the bank's toxic loans and either fold them into Northern Rock, another mortgage lender nationalized by the British government in February, or employ Santander to administrate them via its British banking teams of Abbey National and Alliance & Leicester.

"Santander's work force might not be as overstretched as Northern Rock's is," said Alex Potter, London-based banking analyst at Collins Stewart PLC.

Bradford & Bingley was particularly vulnerable to the credit crunch because it specializes in buy-to-let mortgages. Rising mortgage rates mean that investors who took out loans to buy properties for renting out are no longer able to cover their mortgages repayments with their rental income, and many are defaulting on the loans, especially the 17 percent of Bradford & Bingley borrowers whose incomes had not been verified by the bank.

In evidence of just how tight the mortgage market is now, the Bank of England said Monday that mortgage lending had collapsed to just 143 million pounds ($258 million) during August, only 5 percent of the previous month's 2.9 billion pound total.

Bradford & Bingley said last week it was cutting 370 jobs in response to the worsening economy, but that was not enough to save it.

The bank's shares plunged from around 300 pence ($5.53) at the start of the year to 20 pence (32 U.S. cents) Friday. All the company's shares had been taken into public ownership by the time the markets opened on Monday.

Bank shares were broadly lower on the London Stock Exchange. Royal Bank of Scotland was off 11.2 percent, Barclays fell 6.4 percent, Alliance & Leicester was down 3.8 percent, and Lloyds TSB was down 6.6 percent.

The opposition Conservative Party criticized the government's action.

"What is really being saved here are not the depositors or the jobs — it is the large institutions that lent lots of money to Bradford & Bingley and made money out of that when times were good and now that times have turned down are asking every single person in the country to pay more in their taxes to bail out this bank," said George Osborne, the Conservative spokesman on Treasury issues.

But many banking analysts argue that the nationalization of the bank could be a boon to taxpayers one day, unlike the U.S. bailout plan, in which the government is simply buying up bad debts.

"In the short term it's going to cost the taxpayer loads," said Collins Stewart's Potter. "But mortgage books are cyclical. We might find that the government, and the taxpayer, loses X million now, but then makes X million in the upturn and floats Bradford & Bingley for a profit at the other end."

The government has not ruled out nationalizing other banks, if trouble hits. A Treasury spokesman said on Monday that Bradford & Bingley is among a number of British financial institutions which have or are being closely monitored by Britain's Financial Services Authority and the government.

The spokesman, who spoke on condition of anonymity in line with government policy, declined to identify any of the other institutions which are currently being watched.

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Associated Press writers David Stringer, Bob Barr and Meera Selva in London, and Ciaran Giles in Madrid contributed to this report.

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