Have Bradford & Bingley shaken the Northern-Rock effect?
On the one hand, the mortgage lender’s numbers look good:
Underlying profit before tax increased by 5% to £351.6m (2006: £335.9m). Underlying earnings per share were up 6% to 40.2p (2006: 38.1p) and dividend per share increased 5% to 21.0p (2006: 20.0p). Underlying return on equity increased to 19.1% (2006: 17.4%).
More important still is a crucial £2bn funding line from a number of key relationship banks which will allow B&B to meet amortizing debt payments through until 2009.
But if you look a little further into the statement:
In order to provide a clear understanding of the ongoing performance of the Group, we report on underlying profits which exclude certain items resulting from strategic decisions, extreme market events or accounting volatility.
Which to our mind is rather disingenuous. Some of those “excluded items” include: a loss on the sale of commercial and housing association portfolios of £58m (remember those?) a treasury asset impairment of £94.4m (SIVs and cash flow CDOs) hedge ineffectiveness of £23.5m (monolines, perhaps?) and “other fair value movements on treasury instruments of £49.7m (on a further portfolio of £250m synthetic CDOs).
Deduct all those from the headline figures and B&B’s actual profit for 2007 is £126m, down 49 per cent from £246m in 2006.
No wonder the shares opened 11 per cent lower on Wednesday.
In any case, what’s this about excluding items “resulting from strategic decisions”? Sounds like the bank trying to treat bad management decisions as an exceptional.
