To nobody’s great surprise, Bradford & Bingley produced a pretty dismal set of first-half results this morning. After a ‘very challenging’ period in which the buy-to-let specialist has been hammered by the turmoil in the banking and housing markets, it ended the period a ‘disappointing’ £26.7m in the red, with bad debt charges of £75m. This time last year, it recorded a £180m profit, so it’s a fairly spectacular fall from grace. And to make matters worse, it’s also fallen victim to a mortgage scam that will cost it £18m. Talk about kicking someone while they’re down.
The lender said this morning that in the last six months, it’s uncovered details of a scam run by organised mortgage fraudsters – who have apparently been targeting most of the big lenders. Although it’s hoping to reclaim some of their illegal gains from insurers, B&B has decided to add another £3m to the £15m provision it made in July, to reflect its current losses from the scam. It would have ended the period in the red anyway, but this added insult to injury.
And things will probably get worse before they get better. Its bad debt charges have soared because more and more borrowers are getting behind on their mortgage repayments – and it expects this trend to continue throughout the year as customers feel the squeeze. This is particularly true of the mortgages it bought in, rather than originating itself – 5.1% of these borrowers are now lagging at least three months behind, compared to 1.8% of its ‘organic’ book – so it sounds like it got a rotten deal there.
Naturally B&B was trying hard to accentuate the positives today, pointing out that the successful completion of its £400m rights issue (which admittedly only a quarter of shareholders signed up to) leaves it with a pretty solid funding position. It’s also managed to persuade Richard Pym to take on the CEO role vacated (for health reasons) by Steven Crawshaw, and brought in consultant PwC to improve the quality and speed of its reporting. And if you strip out all the exceptional items, underlying profits were a respectable £70m.
However, it’s clearly going to be a tough few months for B&B, as arrears and repossessions continue to rise (although it’s promised to spend more money on tackling the problem – which presumably means sending the boys round more often). The buy-to-let market is holding up so far (because nobody can afford to buy), but that might also weaken over the coming year. Though at least less mortgage lending means less chance of getting scammed...
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