What Does Bradford & Bingley's Collapse Mean To You?
Bradford and Bingley's collapse will affect most of us. Here's how.
So Bradford and Bingley hasn't been able to resist the financial tsunami. The former building society has been nationalised by the UK government. The savings side of the business has been sold to Santander, which owns Abbey as well as Alliance & Leicester. The government is taking on Bradford and Bingley's low-quality mortgage book.
So what does it mean to Fools?
Taxpayers
Most Fools are taxpayers and we now own Bradford & Bingley's £42bn mortgage book. Much of this book is made up of risky buy-to-let loans.
This book isn't worthless. Many of the borrowers will gradually pay off their mortgages in the years to come as originally planned. However, I fear that the government may not get back its full £42bn so this could be a further long-term burden for us all.
Shareholders
Shareholders in Bradford & Bingley have had a rotten year and now their shares have been taken by the government. I suspect some shareholder action groups will push for compensation for shareholders and we could see some litigation in the courts. But the most likely scenario is that the shareholders will receive nothing at all.
I feel especially sorry for people who have held these shares as a long-term investment since demutualisation in 2000. It's a very sad story.
Savers
The savings market has been buoyant over the last year. The credit crunch has meant that banks haven't been able to raise finance from the money markets; so banks have been forced to rely on ordinary savers instead. As a result, we've seen high savings rates on offer - significantly higher than the Bank of England's base rate.
Bradford & Bingley's Internet Saver Issue 3 has been one of the best savings accounts out there paying 6.51%. The account is now being operated by Santander and the cracking rate is still on offer as I write.
That said, Santander doesn't have a pressing need for cash, so it may cut the rate before too long. There are several other accounts still paying around 6.5% such as the ING Direct Savings Account, so rate tarts may want to switch.
There's also a good chance that the Bank of England will reduce its base rate in the next few months - that could give savings rates a downwards push across the board. Now may be a good time to sign up for a fixed rate savings bond where you could lock in a rate higher than 7% for a year.
Property owners
Property owners with Bradford & Bingley mortgages should see no change in the near future. Further out, B&B borrowers may face less attractive terms once their current deal ends.
Of course, B&B has been a big player in the buy-to-let mortgage market. Today's news will hit confidence further in that area and I expect house prices to carry on falling.
The banking market
The UK banking industry looks very different compared to a year ago. Lloyds/HBOS will now be the dominant player and looks too large for comfort. What's more, three smaller players - Northern Rock, Alliance & Leicester and Bradford & Bingley - are no longer independent.
You could argue that Santander is now big enough in the UK to be classed as a new member of the `big 5'. That's welcome.
But overall, the UK banks sector looks less competitive than it was a year ago. That will mean less attractive deals and is bad news for us all.
Any more shocks to come?
I can't say for sure. We live in extraordinary times.
Most Recent
Comments
-
We will always have these ups and downs in the market and to blame any politician for the mess is to ignore the basic fault in the system greed. If the various bonus could only be paid when the deal is complete even if several years down the road greater care would have been made by the dealers and the losses of the banks, which filters down to other buisnesses would be greatly reduced. The problem is politians of all parties are unwilling to act to control the market mainly because of the outrage that would appear in the press through out the world and probably ruining their political careers
REPORT This comment has been reported. -
To the comment by LastChip, there is a difference between reasoned investing in equities and gambling. If I'd lost money on horses, or cards, or the lottery, that would be gambling. Investing is an entirely different matter. You should try reading material about such people as Warren E.Buffett and the methods he uses. Especially his distinction, as he puts it, between investing and speculation.[br/][br/]We are not talking here about losing money on equities based on gambling. We are talking about reasonable assurances given in the rights issue documents which were clearly not applicable to the situation. There is a name for this: fraud. One of the main assurances that was given was that of the going concern basis. On that assumption, if the firm raised money and then went belly up just a few months later, there is clearly the need for investigation. This is where I admire the USA, they are really heavy into this sort of fruad, while the UK just sweeps it under the carpet.[br/][br/]By the way, an awful lot of B&B personnel in my local branch, it appears, did not go in for the rights issue. Did they know something that was'nt in the prospectus/documents? Maybe they just quietly sold their share while they still could ( sorry if I'm insulting any B&B employees based in my small experience in talking at my local B&B branch).
REPORT This comment has been reported. -
Feeling sorry for shareholders is nonsense. [br/][br/]One of the first things you learn as an investor is: DO NOT invest more than you can afford to loose.[br/][br/]Equities are not and never have been a one way street. If you can't stand the heat, stay out of the kitchen; simple as that.[br/][br/]Most B & B small shareholders got the shares for free anyway, so where's the grip?[br/][br/]Do I feel the heat? You bet! My portfolio has taken a dive over the last eighteen months, but as a long term investor, I'm not particularly concerned. However, what I have NEVER done, is going crying for help when one of my investments has gone tits up. It's part of the game - get use to it.[br/][br/]If you don't want that level of risk, stay out of equities.
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
01 October 2008