Details began to emerge today of the deal to save the ailing mortgage lender Bradford & Bingley.
The company, which has been battered by the credit crunch, is to become the second UK bank this year to be nationalised – following Northern Rock into public ownership – after attempts to sell the business failed.
Under the deal thrashed out in weekend-long talks between the B&B and the so-called Tripartite Authority – the UK Treasury, Financial Services Authority (FSA) and the Bank of England – the savings part of the bank’s business will be sold to Spanish bank Santander.
This would see £22.2bn (€28bn) worth of deposits, held by 2.5 million savers, taken into the ownership of the Spanish banking giant, which owns Abbey and soon to complete the purchase of Alliance & Leicester.
A Santander spokesman said: “The retail deposits and branch network will be taken over by Abbey. Details of which will be revealed later.”
B&B’s £41.3bn (€52.1bn) mortgage book is set to be taken under public ownership - meaning the taxpayer takes on the risk of defaults.
A formal announcement on the fate of the buy-to-let specialist, which can trace its roots back to 1851, will be made before stock markets open today.
Treasury Chief Secretary Yvette Cooper yesterday told the BBC that “ordinary savers” at the bank would be protected.
She said: “We have been very clear that the priority is to make sure that depositors, that ordinary savers will be properly protected, but also that we can support the stability of the banking system as a whole.”
But its army of more than 900,000 shareholders from the former building society’s demutualisation in 2000 could be wiped out – with the threat of job cuts among B&B’s 3,000 staff.
The FSA has been hunting for a buyer for the firm but B&B’s shares have tumbled to a record low as turmoil gripped markets following the collapse of Lehman Brothers – as well as rescue takeovers of US firm Merrill Lynch and Halifax Bank of Scotland in the UK.
The company uses money markets to help fund its business, but lending rates between banks have soared as banks fearful of losses refuse to lend to each other – raising worries over B&B’s future.
B&B fell £26.7m (€33.7m) into the red in the first half of this year amid spiralling arrears and bad debts, its former chief executive resigned for health reasons, and it lost the confidence of the City with twice-rehashed plans to raise funds from its shareholders.
A move to cut 370 jobs and sell off most of its toxic mortgage-backed investments failed to stop its shares sliding this week.
Shadow chancellor George Osborne expressed concern that if B&B was nationalised, the taxpayer would be taking on a “huge risk”.
“This choice between either a private sale, which is obviously the thing you most want to arrange, or nationalisation where the taxpayer bears the full cost is not a great range of options.
“There should be a third option which is a Bank of England-led reconstruction where, in the end, the large institutional creditors to the bank bear the risk, not the taxpayer,” he told Sky News’s Sunday Live programme.
Liberal Democrat Treasury spokesman Vince Cable added that nationalisation was the “least worst” option.
“It would have been better if B&B could have been saved with a private sector purchase, without recourse to the taxpayer.
“But in the absence of a buyer, the British government had no alternative but to learn the lessons of Northern Rock and act decisively,” he said.