Easy to slip under the radar when your larger rival is navigating its way through a massively discounted rights issue. But let’s make space for the latest from Bradford & Bingley.
The good news: the bank, which was last week the subject of rights issue speculation itself, still has a £2bn funding line on which it hasn’t drawn. It is also pulling in savers’ funds, with an increase of £1.9bn so far this year – but the bank still must bear the stigma of having the lowest customer deposit base relative to loans, in the aftermath of the collapse of Northern Rock.
Mortgages have been repriced to “regulate volumes and widen new business margins.” The repricing has in fact “more than” compensated for the bank’s higher cost of funds on recent loans. The bank is covering itself on new business – but the signs are that we’re in for a period of sharply reduced lending, at expensive levels.
But in terms of its old business, the rot looks to be setting in. Arrears are on the up, reflecting “increasing payment strain.” Alongside falling house prices, it all means increased provisions as more borrowers hit difficulties.
Charges on the bank’s portfolio of structured nasties may be nearing an end, but the first quarter saw another £38m in losses hit the P&L, while the derivatives bound up in B&B’s synthetic CDO and CLO portfolio lost another £44m. A further “redirection” of £43m also on assets classified as available for sale.
But most worrying perhaps is this:
Supply has clearly becoming more constrained with the withdrawal of several competitors from the UK mortgage market. However, demand for buy-to-let remains robust, with landlords reporting continuing tenant demand and rising rents.
The great British property adventure continues unabated then. As competitors exit such niche markets, B&B’s already leading position will be extended.
One analyst summed up the prospects for these markets thus:
B&B is the market leader in Buy-to-Let mortgages which offer customers 100-1000% gearing into a declining asset class where none of the risks of leverage have been explained. BTL also offers investors a huge negative carry trade with average net property yields in the UK being 3.75% and mortgage finance now coming at almost double that. Self Certified mortgages (liar loans as the Americans appropriately call them) where B&B takes no income verification at all are at best going to see the income of the borrower be at its weakest when the collateral value is at its weakest as overtime and bonuses diminish with a weakening economy.
If the squeeze on margins and structured finance writedowns are coming to a conclusion, another drama is only just beginning to play.
Related links
B&B statement
B&B non-rights issue proves unpopular – FT Alphaville