Sunday, 28 September 2008

From The Sunday Times
September 28, 2008

B&B and Fortis both in crisis

Bradford & Bingley’s fate to be decided by tonight as Spanish bank Santander leads rescue talks

Iain Dey

BELGIUM’s Fortis is this weekend poised to become the first large continental bank to fall victim to the credit crunch, as the global chaos continues with Bradford & Bingley and American savings giant Wachovia both teetering on the brink.

The Belgian central bank and the country’s regulator are paving the way for a bailout of the huge banking and insurance group, which has a £540 billion balance sheet and a market value of £12 billion.

In Britain, the fate of Bradford & Bingley will be decided today. Fren-etic talks between the Bank of England, the Financial Services Authority and the government have been taking place this weekend to save the troubled mortgage bank.

Santander, the Spanish bank, is in negotiations to buy B&B, but it is insisting on a stringent set of conditions. The talks are being led by Anto-nio Horta-Osorio, chief executive of Santander’s UK bank, Abbey.

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Another option being pursued by the government and the FSA is to carve up B&B. This would result in the sale of its £20 billion deposit business, its 197-strong branch network and its troubled mortgage book. These assets would be auctioned to the highest bidder.

But the government could still be left with the bulk of the £42 billion mortgage book, half of which is exposed to the buy-to-let market. One government adviser said: “What we have to do is find the best deal for the taxpayer.”

If no buyers come forward, B&B will be nationalised and broken up. However, while the fate of B&B offers a fascinating insight into the hardship faced by financial institutions, in terms of international significance the problems faced by Fortis are far more serious.

Dutch banking giant ING and France’s BNP Paribas are both involved in talks with Fortis about buying all or part of its business.

Neither bank is thought to be willing to take on Fortis unless they can receive guarantees over the bank’s exposures to sub-prime mortgages and other problem assets.

The Belgian regulator is thought to be considering the creation of a “toxic dump” for assets similar to the controversial scheme proposed in America as a means of ensuring a deal.

Any uncertainty around the future of Fortis is likely to weigh heavily on Royal Bank of Scotland. Fortis was one of RBS’s partners in the consortium that bought ABN Amro last year.

The Dutch banking assets that Fortis bought as part of the deal have yet to be transferred out of the holding company used to execute the deal, which is legally a subsidiary of RBS.

Talks on the future of Fortis, which has 2,500 branches across Europe, accelerated on Friday night after the bank replaced its chief executive, appointing instead Filip Dierckx, who has been on the board since January.

The Belgian government, regulators, and the Dutch central bank are all involved in the talks. A deal is expected to be announced by tomorrow morning to prevent a crisis of confidence that could spark public panic and a run on deposits.

Fortis is Britain’s third-largest private car insurer, based on volume, and the fourth-largest travel insurer.

The British government is also keen to have resolved the future of B&B by tonight and is fearful that uncertainty over the bank’s future will create a run on deposits.

Yesterday there were queues at only three B&B branches. Staff volunteered to go in and help, but there was no repeat of the huge queues outside Northern Rock last year and all anxious customers were seen.

Santander’s prime interest is in the branch network and the savings franchise. It is seeking dispensations from the Competition Commission to prevent investigations into the market shares that the enlarged group would have.

Two weeks ago the government waived the competition rules to allow Lloyds TSB to take over HBOS.

If the deal went ahead, it would create a duopoly in British banking, with the new Santander conglomerate going head to head with the combination of Lloyds TSB and HBOS. The only other bank that had entertained talks to acquire B&B was HSBC, but the bank attached a series of conditions to the deal that was unacceptable to the Treasury.

Santander has also been linked to a possible move for Wachovia, America’s sixth-largest bank, alongside Wells Fargo and Citigroup.

Wachovia put itself up for sale on Friday night after a crisis of confidence sparked by the collapse of Washington Mutual and its subsequent sale to JP Morgan.

Robert Steel, Wachovia’s chief executive, contacted the three banks as his share price plunged 27% in response to the Washington Mutual sale. Toronto Dominion Bank of Canada is also rumoured to be on the fringes of a possible deal.

Prospective bidders were said to be waiting to see whether there was a prospect of waiting for Wachovia to collapse before stepping in, buying only the good parts of the business.

Wachovia had spoken to Morgan Stanley, but these discussions fell apart on concerns about the bank’s exposure to toxic mortgages.

A deal may be made easier to achieve if the US Congress agrees on a $700 billion (£380 billion) bailout facility over the weekend.

Analysts say that most of the obvious bank targets that had been identified as weak, have now fallen.

However, they are not ruling out further surprises, particularly while conditions in the interbank lending market remain at their most severe since Britain quit the European exchange-rate mechanism in 1992.

Let the banks go..if we save them now, we will just delay the inevitable. The government counted its chicks way before they hatched, and this batch of sub prime and prime mortgages will founder anyway..so lets face reality, people cannot afford to spend half their life income on a house mortgage.

HOWARD HOFELICH, Kailua Kona, USA

The US Congress in 1978 created the Community Reinvestment Act, and then in 1995 CRA was expanded under Clinton "bank, you must loan to X socioeconomic group or be guilty of redlining". 0 down, ARM resulted. It was not greedy bankers. It was greedy politicians who caused this mess

Jeff, austin, texas

These banks have raped and pillaged and driven the prices of everything up so high with their crazy toxic loan products that the average person had no choice but to use credit just to maintain a reasonable lifestyle. Wages haven't actually gone up in years! Stop the bailouts! www.FedUpUSA.org

Stephanie, Michigan, USA

Posted by Britannia Radio at 06:09