Last autumn the City believed that a second Northern Rock was lurking and hit on two likely candidates among the mortgage banks — Alliance & Leicester and Bradford & Bingley.
Bradford & Bingley quickly moved to make sure that it was not going to fall victim to the credit crunch by addressing its funding position, yet sentiment has continued to weigh on the shares as the general outlook for the UK housing market has worsened.
Today Bradford & Bingley attempted to show off its stature by revealing its funding position, how much new business it had written, 27 per cent up on last year, and how many savings it has attracted — 7 per cent up on last year. The mortgage bank was also up-front about the writedowns it was making on its relatively small exposure to the sub-prime market.
One-off charges totalled £226 million, although the sub-prime element of this amounted to only £94.2 million. On the scale of the writedowns that other financial institutions have made, this is negligible, but it has spooked B&B’s investors, who sent shares plunging far below the 2000 IPO price.
Admittedly, the writedowns were higher than analysts had expected but for those who take a “glass half full” approach, the bigger the writedown the smaller the remaining exposure.
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On the positive side, the bank has funding in place into 2009 and that means it can continue to write new business and take market share at a time when rivals, such as Paragon, are suffering. B&B, already the UK’s largest buy-to-let investor, has a positive view on the sector and says that its customers are keen to invest more in this part of the housing market, which is seeing tenant demand at a five-year high.
There are suggestions that some of the hobby investors have pulled out of the buy-to-let market, meaning that professional portfolio owners, with a more rational approach, should help to increase margins and minimise the chance of a buy-to-let market collapse.
That said, today’s results showed a sharp increase in arrears, as the difficulties that some borrowers are having in making repayments start to bite. Bradford & Bingley may be in a much better position than Alliance & Leicester, but there are still some significant uncertainties out there that are unlikely to disappear in the near term.