This morning Bradford & Bingley’s shares were suspended, its deposits and branches sold and its assets nationalised but the miracle is that it managed to survive for so long.
When Chris Rodrigues took over from Geoff Lister as chief executive back in the 1990s it was still a society but Rogrigues was out to make his mark and inflicted a triple wammy on the business.
He “let go” the cream of his management team, replacing them with his own people; in 1999 he fought a lack lustre campaign against the carpetbaggers to defend the society’s mutual status, and then, in taking B&B to the City, he decided he couldn’t offer investors just another mortgage bank.
Instead, he reinvented the business as a distributor of other firm’s mortgages’ leaving just its buy-to-let subsidiary Mortgage Express to continue originating new business.
The unique selling proposition was that in a competitive mortgage market there was more money to be made in commission than in manufacturing which in fairness to Rodrigues became the currency for a time.
John Wriglesworth, general manager marketing under the Lister regime and at one time tipped for the top job at the society, described the business model as unsustainable which proved the case but critics among Rodrigues’ former society peers were always skeptical of his intentions.
Their missgivings were confirmed when Rodrigues declared: “When we float we’re obviously responsible to shareholders and would look at anyone who comes along with a large cleared cheque”.
Suitors however, didn’t knock on his door in droves and Rodrigues eventually jumped ship for a lucrative job in the US, leaving Steven Crawshaw, a former Cheltenham & Gloucester man, to remodel the business for a second time.
He made the right moves in cutting back on the distribution model but while his strategy of acquiring mortgage books from GMAC-RFC and Kensington, and focusing on the buy-to-let market brought the business to a peak in 2006, its balance sheet weakness were exposed by the failure of Northern Rock.
There were also questions about management competency which was severely exposed over a £300m rights issue which started in April as a rumor that was denied by Crawshaw and ended in a mid-summer farce.
First there was to be a flotation after all. But this was abandoned following the announcement that private equity group TPG was to step in as a white knight -and take a 23% stake in the business.
This move opened the door for Clive Cowdrey of Resolution to make an opportunist offer but all these prospects evaporated as both TPG and Resolution had a change of heart and Crawshaw stepped down for health reason.
Indeed it was left to the Financial Services Authority to pick up the pieces. It persuaded Resolution’s original backers, Standard Life, Legal & General, M&G and Insight Investment, to plug the gap left by TPG. That saved t he right’s issue, so repairing B&B’s capital base but confidence had been irretrievably damaged.
Even the appointment of Richard Pym, the safe pair of hands that had navigated Alliance & Leicester through some very interesting times, was not enough to save the bank.
He managed to downscale its exposure and renegotiate the deal with GMAC-RFC but this obviously wasn’t enough to satisfy the FSA or the City and the FSA has been looking for another bank to step in rather than face another Northern Rock scenario.
The problem for the FSA is that while the retail savings side of the B&B business has it attractions, the arrears situation with its mortgage book would make it a no go area for any lender.
Thus the deal secured by the Treasury and Financial Services Authority last night will see the Treasury take control of the remaining mortgage and personal loan books, wholesale liabilities and the relevant staff and headquarters.
Abbey will take over depositor and saver accounts (said to be worth £21bn) and B&B retail branches, for around £400m.
The Financial Services Compensation Scheme has paid out around £14bn to ensure the protection of B&B’s retail deposits. It has also paid Abbey £4bn to ensure the safety of the remaining deposits not covered by the FSCS.
The Bank of England has been called in to fund the transfer by the FSCS which will be paid for by the wind up of B&B.
According to the regulator, the move was triggered by poor investor and lender confidence, likely sparked by growing speculation around the longevity of the business.
B&B owns Mortgage Express, the nation’s largest buy-to-let lender, and will no longer offer new mortgage products.
Last week it announced it would slash 370 jobs connected to mortgage processing and begin a review of head office and central staff.
Alistair Darling, chancellor of the exchequer, says: “The first way of redeeming the costs that we are incurring comes from redeeming the assets of B&B.
“If that isn’t enough, then there will be a claim under the compensation scheme. What I am making absolutely clear today, is that I have no intention of collecting that money in the immediate future.”