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S&P downgrades B&B

Ratings agency Standard & Poor’s has downgraded Bradford & Bingley over asset quality concerns within the lender’s buy-to-let and self-cert mortgage book.

The B&B short-term counterparty credit rating has been lowered from ‘A-2’ to ‘A-3’. The ‘A-3’ short-term counterparty credit rating also remains on CreditWatch with negative implications.

Nick Hill, S&P’s credit analyst, says: “The downgrade reflects our view that constraints on B&B have increased materially in recent weeks, although liquidity is currently strong.

“At the heart of these problems is the likelihood that asset quality in B&B’s key products of self-certified and buy-to-let mortgages continues to weaken rapidly, due to a combination of rising arrears and an unfavourable LTV profile.”

The ratings agency believes the lender’s liquidity is strong, thanks to a restructure of its funding and access to the Special Liquidity Scheme. But S&P is concerned that the lender is becoming increasingly reliant on secured funding, which may prove difficult to come by should asset quality deteriorate further.

B&B has had some success in raising deposits, but the ratings agency says even this source of funding is vulnerable given the negative publicity regarding its £400m rights issue.

The report goes on to suggest that the HBOS-Lloyds TSB merger goes to show the magnitude of current market pressures. It says for the second half of this year S&P, excluding potential further structured credit write-downs, expects the lender to be little above breakeven.

Hill adds: “We will resolve the CreditWatch status following meetings with senior management next month. We will be seeking more information on the outlook for margin trends, profitability, asset quality, funding and liquidity, as well as strategic direction.

“We will also be assessing the degree of external support. The rating is unlikely to be lowered by more than one notch. The rating is only likely to be raised if B&B is acquired by a stronger banking group or if external support otherwise becomes much more tangible.”

The news follows the announcement that B&B has renegotiated its agreement to buy mortgage assets from GMAC-RFC.


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