Kick off is scheduled for 9.30am, as B&B faces a doubtless hostile group of City analysts.
9.31 - we’re being thanked for our patience. Waiting for more participants to join the fray.
9.33 - nothing yet. More thanks for “continued patience.” The music is somewhat frantic, free-flowing piano music. They arguably should have gone for something more calming.
9.34 - we’re off.
9.35 - Rod Kent understands investor disappointment - but this is not a story about liquidity and funding. B&B has a strong balance sheet and capital ratios - it is a story of a sharp downturn in trading performance. The other story is attracting TPG - a world class investor - to become a major strategic investor.
9.36 - Kent hopes the press release made it clear that Steven Crawshaw is “seriously not well.” Best wishes to him and his family.
9.37 - Kent pledges to bring a “greater dose of realism”. Greater sense of urgency. Admits the company has made “too many mistakes recently.”
9.38 - simple fact is that they did not pick up quickly enough on trends, says Kent. Figures for April were only available at the end of May.
9.39 - not given a profit forecast - feel it is “unrealistic” to give one in a time of such uncertainty.
9.40 - added less new high margin business and greater amount of older low margin business remains - lower NIM expected for rest of year.
Arrears and credit impairment rising faster than expected - see these rising for rest of year. Hit “pockets of collusive fraud” - also expected to continue.
9.41 -the deal. About 40% of £400m net comes through investment of TPG, with remainder through restructured rights issue at 55p.
9.42 - Kent: became clear in light of trading figures and recent weakness of financial stocks, share price would trade below rights price.
9.43 - better to readjust rights issue rather than suffer the unhappy consequences of having the original rights issue trade “under water.”
9.44 - trumpeting TPG’s achievements. Washington Mutual? “Formidable” track record. First investment in a UK bank.
9.45 - Q&A. We’ve been told to keep quiet. Analysts only. Shhhh.
First question about £15m charge for fraud, of £36m impairment charge. Answer is that whilst have tightened underwriting processes (to minimise exposure to fraud), still have to see “full emergence” of what’s on the books. Can’t rule out possibility that will continue. On impairment, “trend in arrears continues upwards” - rate of acceleration might not continue at current rate.
9.49 - missed a couple - but now J Pierce from Credit Suisse is up. “Arrears trends were there for all to see.” “What has happened in last couple of weeks?” he asks. Was it house price related? Follow-up - what would they do if TERP fell below 55p?
9.50 - response - main change in attitude, had anticipated arrears flattening off, now expected to climb. View of market now “more realistic.”
9.51 - Chris Willford, FD: “previous guidance was based on March figures and have seen since March evidence of worsening economic conditions around us.”
9.52 - Kent again - rights is fully underwritten. See TPG’s presence as “significant new factor” - and will effect how market views the company. [Not so far - B&B down 23 per cent on Monday.]
9.54 - Fraud is “industry wide”. Not GMAC related.
9.54 - Pierce is unimpressed. GMAC book has substantially higher arrears. Kent concedes it is “disappointing.” “Need to understand how we got that so wrong.”
9.55 - Moving on now. Ian Smillie from ABN. What the minimum requirement for further GMAC loans? Asks for comment on flow from 3-month plus mortgages to repossession cases? Within the bad debt charge, how much is write-off versus credit loss reserve rebuild?
9.56 - £350 a quarter is contractual obligation under agreement signed in 2006 - subject to due diligence. “Do that very carefully.” The contract due to expire in December 2009.
9.57 - the other two questions “take us beyond what we’ve disclosed in press release.” So no answers there then.
9.58 - stepping down new gross lending is what’s putting pressure on margins.
9.59 - self-cert book has performed worse than the buy-to-let book “in the past and that has always been the case.” Not any particular asset class that’s driving changed guidance today. “All types of mortgages are experiencing a rise.” Not yet a differential between different types on lending in arrears.
10.00 - question on reserving. “Closely aligned now to Basel methodology” - should they be doing it a different way, asks the panel. Smillie says “he’s trying to get into your minds…” Creepy.
10.01 - Kent is “all ears” as to what the analyst community wants to see in terms of disclosure.
10.02 - KBW is up - “thanks for the extra disclosure by the way.”
10.04 - No put back clauses on GMAC loans is the short answer.
10.04 - Simon Maughan from MF Global.
10.05 - Kent: Treasury impaired investment book has slowed considerably. Good news from board’s point of view.
10.06 - New analyst - why are they bailing out the underwriting banks at the expense of shareholders?
10.07 - Kent - didn’t want the consequences of underwater rights issue - with TPG on board - “look and feel in better situation.”
10.07 - at what point were TPG introduced?
10.08 - Kent: met about a month ago - introduced by Goldman Sachs. Had “done a lot of work on us.” Deal was “transacted extremely quickly.” “Demonstrates power of this business.”
10.09 - so were they around before 82p rights issue? No, says Kent, they were introduced - but not talking about a deal. Introduced as investor rather than strategic buyers. “Only came into this deal in last few days.”
“important for us to get as much certainy and clarity”
But you had a fully underwritten rights issue?
“though…was a better deal overall for shareholders.”
10.10 - analyst suspects Steve will “carry the can.” What more changes to do they anticipate making?
10.11 - Kent: board not seeking to duck its responsibility. Last nine months been “unprecedented.” He thinks B&B did “extremely well through credit crunch” - challenges on liquidity, treasury and now trading.
Have to look at most important things - “speed and urgency of financial information and speed of response” - and need look at how communicating with market.
Interesting - Kent says he’s been in post for five days.
10.13 - James Eden from Exane. Asked same question as previous questioner (Tim Sykes at Execution it turn out). Thinks to reduce rights issue price because of challenging market conditions outrageous - exactly why underwriters are paid. “What’s the real reasons that you’ve done this?” Were they worried about getting sued by underwriting banks?
Kent: Thinks consequences of underwater rights issue and overhang in market, “simply not appealing…..that’s the reason.”
Was a “judgement call” - when looked at consequences of failed and underwater rights issue, clear as board that this was a better deal.
10.16 - Eden is unimpressed. We “all hope” it doesn’t happen but does the board have a plan if there are queues outside branches? And he invites UBS and Citi to return the underwriting fees.
10.18 - Kent underlines importance not to be “salacious” - he hopes it doesn’t sound pompous - he’s sure “as a community” we won’t be salacious”. The tabloid press are in the firing line as potentially whipping up a panic. Not a liquidity problem etc etc
10.19 - New analyst - back to self-cert and buy-to-let. On GMAC loans acquiring out to Dec 09, will have same criteria as back in Dec 06?
Answer from Willford - “talking to GMAC every quarter about quality of business we would like.”
But what can you practically do if agreements were set in place back in Dec 06?
Willford - “nobody in the market is writing high loan to value business including GMAC.”
Kent - but right to say can only tighten to terms of contract with them.
10.24 - Oriel Securities - arrears outlook. Is change probability of default or loss given default?
Kent - when started the year “weren’t anything like as gloomy as are now.” Both are drivers.
Willford - change in assumption on probability of default is the larger portion.
10.26 - Kent - “one of our tasks to make shareholder and analyst base aware of who they are and what they’ve done.” Think they’ll find it quite “interesting and exciting.”
10.26 - HSBC is back on the GMAC book. Could be fear in market that there’s a lag, so B&B book will deteriorate along with GMAC book?
10.27 - Kent - investigation not yet over. Willford - 2 things are different. Precise collections process for GMAC slightly different from originated loans. Also fair to say that been widening in last nine months in credit performance of acquired and organic loans, goes back to origination periods from 2006 onwards.
10.29 - Willford - in terms of asset types, not material differences in criteria there. Bought lot of standard residential loans from GMAC which don’t originate much themselves.
Kent - “one of them is a process point which I want to burrow into pretty quickly….”
Re vintage issue: “not a taste of ours to come… don’t have all the answers and we should have.”
“that’s what I would call upping our game.” Reduced flow - so will become less and less important going forwards.
10.33 - More from HSBC, on PD versus LGD. Kent - part of more realistic assumptions, to revise down house price outlook.
10.34 - Sandy Chen, Panmure. Is there potential read across to capital ratios? Capital requirements go up as LTV rises, i.e as house prices fall.
Willford - 10% fall doesn’t make a difference to that capital weighting.
Kent - not reason for this rights issue.
Willford - our central assumption for house price deflation is 7 per cent and don’t expect next year to be very different.
10.37 - Lehman on TPG. Kent says they’re extremely thorough - know the business backwards.
10.40 - slowing arrears - geometric or arithmetic? Someone wants to update their model.
10.41 - Helsby from Morgan Stanley - more detailed model questions. Arrears at end of March? Can’t be disclosed. Was April the big driver? Answer - arrears have risen every month this year. Kent - about the trend becoming pronounced. Very clear signs in April - “realised we were too optimistic.”
10.42 - what is the nature of the fraud? Kent - “collusive fraud”. Got to be careful not to extrapolate “pockets” - expect a pocket or two that we’re going to get.
10.46 - Helsby - worrying that B&B is constrained from writing new business because people are remortgaging/moving away - is this a viable asset class? Does it make you think about strategic positioning as specialist versus mainstream?
10.48 - Willford - “lenders have abandoned mortgage market generally, and wouldn’t single out buy-to-let market.”
Some BTL lenders out - strategically positive for B&B - can write business at higher margins.
10.49 - Rod Kent has called for a toilet break - seriously. He’ll “cross his legs” though. Only two more questions on the line.
10.50 - someone’s asked Chris a question so Rod can nip off to the loo. That’s nice. He’s excused.
10.50 - Willford - outside BTL doing no lending above 75% LTV. Have tightening proceedings related to valuers. Increased credit score card cut-offs across the board.
10.52 - final question!
10.53 - Kent is back from his pee break. Won’t comment on complex contractual arrangements between two parties (i.e. GMAC).
10.54 - Willford - capacity to grow arrears team without significantly denting cost-income ratio. One of benefits of contracts negotiated with GMAC and Kensington - can grow capacity in good times and can reduce capacity in low growth period without laying people off.
10.55 - final, final question. Is there suggestion could do with more capital?
Willford - funding constraints referred to are de facto self imposed at the moment
Kent - key bit of this is self-imposed, as we go into a slowdown following a credit crunch being very conservative about our funding and capital ratios. Strategic decision. When judge conditions are right, have capacity to increase loan book. “That’s what this capital is about.” Replacing hole from treasury impairment, but also about being able to grow business in the future.
10.58 - Phew. Thanks from Kent for the questions. “I enjoyed trying to answer and hearing them answered by Chris.”
Kent: Over and out now.
