Bradford and Bingley
Transcript
Clare Francis: Another week, another twist and turn in the financial crisis. This time it's Bradford & Bingley that has become victim to the credit crunch. The Government has confirmed that the former building society is to be nationalised, making it the second UK bank this year to be taken under state control. So what does all this mean for the likes of you and me?
Well, Kevin Mountford, who's head of banking and mortgages at moneysupermarket.com is with me to explain.
Kevin, here we are again. Last week it was the rescue of HBOS by Lloyds that we were talking about, now it's the Government bailing out Bradford & Bingley. Obviously, nationalisation of the bank is terrible news for shareholders, but what does it mean for customers?
Kevin Mountford: I guess this latest move was some what inevitable, B&B has been under the spotlight for a while and it's another example of where there is failing and reduced confidence across the market and across consumers, so as I say the move hasn't come as a surprise.
I think short term there will be very little impact, I guess the borrowers who have got existing mortgages will be ok for now, and the savers, their money continues to be protected up to £35,000 regardless of when and where that moves into the ownership of Santander
Q2: I was going to say, this makes it a bit different for the nationalisation of Northern Rock, because obviously with Northern Rock the whole business was nationalised. This time around the savings book has been sold onto Santander which is the Spanish bank which owns Abbey and is about to buy A&L. What does this mean for taxpayer? It seems as though the taxpayer is getting the raw end of the deal here because we are getting all the risk of the loans that nobody else wanted and yet the bit of the business that's got some value (the savings) is being sold onto another institution, is it a bad deal for..?
Kevin Moutford: I guess first of all the deal is symptomatic of the problems we face in the global economy and that is books of bad debt and has come through, I guess, as irresponsible lending on mortgages and nobody wanted that bit. My understanding was that Santander were approached to take on B&B a few weeks ago but clearly didn't want that, so it was inevitable that the two parts of the business had to be split.
In terms of the taxpayer, it's difficult unless you get into the detail. As you rightly say it's the shareholders first and foremost that shoulder most of the risk here, and then I guess the wider industry also will have to pick up some of the pieces should this ultimately fail. But my view is that somewhere down the line with these sorts of deals the taxpayer is going to pay, or the consumer is going to pay, in one way or another.
Q3: What does it mean for savers because obviously one of the reasons why we have had this announcement is because of all the negative stuff in the weekend. There was this fear that if we didn't strike a deal, if the Government didn't come to some arrangement we would see another run on a bank as we saw with Northern Rock. Is the fact that its future is now secure, half of it is going to be under government control the rest is going to Santander, does that make it more safe for savers, do they reassure?
Kevin Mountford: I guess safety in numbers here, similar as we saw with HBOS and Lloyds, the talk is big is beautiful and effectively now as a bigger entity you would hope that there was a greater stability. I think on more of a global scale now we have got the rescue package coming out of the states, I just hope that that is giving us a period of stability because regardless of how real the failing of a bank would be, it's all about consumer confidence and perception and I think that's what's clearly ruling here and hopefully now a bit of stability both, as I say, in the US and here in the UK might mean the consumers stop worrying. That said, we have clearly seen lots and lots of activity through our site, people have genuine concerns and are moving money around to ensure that they are not exposed beyond the £35,000.
We saw recently that the Irish government made some changes to there compensation scheme, they now cover 100,000 Euros and we have seen a move now to the likes of Anglo Irish and the Post Office that is backed by the Bank of Ireland, so people are clearly watching what goes on and making sure, as I say, there not overly at risk.
Q4: Longer term, whilst your money may be perceived to be safer now does it mean that savers are going to get less competitive rates, because at the moment in the easy access market we have got Abbey, A&L and Bradford and Bingley all offering rate above 6.5%, they're all going to be part of the same stable.
We have also got the Lloyds/HBOS merger all reducing competition in the market does that mean they no longer have to fight against each other, so could the days of the fantastic savings rates be numbered?
Kevin Mountford: I guess so, in theory. At the end of the day as you say if there is less brand there is less need to compete, price is king at the moment, savings rates are artificially inflated.
I guess the big questions the UK market place has been prying for overseas brands and no doubt more will enter into that space, so we will just have to see but I certainly think for the remainder of this year and into 09 the desire for the banks to shore up there balance sheets with retail savings will mean that the market place will remain quite strong.
Q5: And what about borrowers, because obviously Bradford and Bingley's mortgages customer have got a big proportion of the buy-to-let market and the self cert market.
A lot of these people will be part way through a fix or discounted terms and therefore wont be affected immediately by the nationalisation but what about when those deals come to an end? Because presumably the government is not going to be looking at actively acquire new mortgage customers, so are rates going to be less competitive and with lenders tightening up on criteria are we going to find that some borrowers just stuck on an uncompetitive rate because they can't remortgage?
Kevin Mountford: The mortgage market is a strange one because we are talking about what consolidation will look like in the future, I think we have pretty much seen it in the mortgage space.
There are a lot less products available and a lot less providers pushing for new business then there has been, which is a shame because we have seen some shoots of promise so I guess in theory as you come off your exciting product then you may need to look to an alternative provider and unfortunately there isn't the deals available that there has been and if they are available they are at an increased price. Let's hope now that the stability on a global front will mean that the banks are more willing to trade with each other so the cost of interbank trading becomes lower and that starts to get reflected and we can use that as a catalyst to kick start the housing market.
House prices have reduced so if the products where available you would expect that that would create a healthier framework, unfortunately there is just a bit of disconnect between the two so we will have to wait and see.
Q6: Are we at a turning point now, because obviously we have got Bradford and Bingley and HBOS - they have been shored up and there future is now secure. Do you think that we might see some stability returning to the banking sector or could there be more consolidation to come?
Kevin Mountford: I guess there could be more, I mean if you are just talking about the commercial sense share prices are pressed at the moment so anybody wanting to acquire or say for instance get a foot hold into the UK, there would be an opportunity but lets hope for a purely economic point of view now we have seen a turning point. From a lending point of view however lessons will be learned and we won't necessarily get the irresponsible products and product features and pricing that we have seen in the past that got us into this situation in the first place
Q7: So not out of the woods yet?
Kevin Mountford: No, not quite
Clare Francis: Thank you Kevin
