Monday, Sep 29, 2008
Leaving the taxpayer with £50bn of toxic subprime sludge
Telegraph: Santander buys Bradford & Bingley's branches
Santander, the Spanish banking giant and owner of Abbey National and Alliance & Leicester, has bought Bradford & Bingley's branch network and £21bn deposit book, leaving the Treasury to nationalise the failed mortgage lender's £50bn loan book.
Posted by paul @ 08:24 AM (1482 views) Add Comment
35 Comments
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1. paul said...
"Board members who have their contracts terminated are entitled to a pay-off equivalent to their annual salary. Mr Kent was paid £265,000 last year, with the other non-executive directors collectively earning almost £320,000."
I have trouble understanding how this is enforceable. Surely the directors' claims on their bonuses are subject to the business still existing. If it's been nationalised, or gone bankrupt surely these generous parachute packages don't have to be paid?
2. matt_the_hat said...
A country with the economy the size of the US is struggling to buy up toxic debt worth ~$750 milliard (£400 milliard). Were nearly there already at 150. When will the UK realize that we are just a splodge at the side of europe, don't own an empire no more and don't have any special relationships and stop trying to keep up with the yanks.
3. Happy Mondays said...
@ paul, i to have great difficulty understanding these bonuses especially from failed enterprises! In fact i have great difficulty understanding the financial system, but maybe thats how it is suppose to be, keep us all dazed and confused whilst the big boys walk away laughing (all the way to another bank)
There definately needs to be a revolution in the finance world, that stops all this going on!
4. paul said...
milliard = billion.
We are given the impression by the UK media that the pound is a collosus in international finance.
It is not. The last time this was demonstrated to us was by Soros in 1992, and the way the government is printing money now, a run on GBP is now every bit a possibility.
5. bystander said...
surely the ECB have been printing their fair share of Euros, but no-one seems to consider a run on the Euro a possibility, or do they????
6. Stevie Dee said...
The more details that are being revealed about this situation, the more you have to tip your hat to the government. Protecting the savers.. taking on board and dealing with my friends the BTLer. Lovely, just where we want these parasites, contained and ready for disposal. Oh yes, the other banks owe the taxpayer too.. GB, is a clever cookie. And all done at or during the Conservative Party Conference.
7. planning4acrash said...
£25bn for a replacement to Trident, 80bn to clean up ALL nuclear sites, possibly around £20bn to make us self sufficient in off shore wind power (forget land wind, its just a land grab exercise). So, what do we do?! Yay, lets bail out unproductive industry! Yay for Socialsm, Yay for Carl Marx!!
8. renting2 said...
Stock market plunged below 5,000 this morning. Boomford & Bustley news therefore going down well!
9. mountain goat said...
I am surprised this bank lasted as long as it did, specialist in BTL and self certified mortgages... At least it's gone now. Maybe all the BTL and self-cert mortgages should be separated from the home owner mortgages and dumped on the market to fetch whatever they are worth, they are dead meat anyway let the vultures pick over them.
10. Danny said...
This is simply not right. It boil my blood. Surely people who are not on the housing ladder, should be exempt from the extortionate tax increases following the nationalisation of Northern Rock and B&B?
11. justwatching said...
I don't understand. Some of you chaps are quite bright. Please explain.
B&B have 50 billion of mortgages owing to them? True/False.
Who has the taxpayer payed 50 Billion to? (&why?)
If no one steps into buy this debt, what happens?
Surely a good deal of this debt is in danger of not being repayed. Who do B&B owe the money to? Why should the taxpayer reimburse them?
12. inbreda said...
mountain goat - it's an interesting point. Are the government really going to use public money to compete in the mortgage industry? They could beat any other mortgage offer on account of the fact that they (demonstrably) can print money at will. When a BTL fixed rate comes to an end, what are the government going to do? Offer a loss making proposition funded by the tax payer? Or hike rates and see a jump in defaults?
I don't think the government capable of organising a p-up in a brewery. The chances of them successfully running a bank and avoiding all of the moral hazard is zero.
The government caused disaster is yet to come.
13. paul said...
bystander, a run on the euro is practically impossible.
To put it into perspective, remember that the pound was run by a single financier working alone. Can a single financier buy all of the euros in Europe? Not likely.
14. matt_the_hat said...
@paul said
No a billion is a 1000 milliard and a milliard is a 1000 million. I know I used realize (realise) before but we shouldn't let Americans take over a numeric system that's been in existence long before the Vikings discovered the US.
Also @7. planning4acrash I think you were referring to Karl Marx unless I am mistaken and he advocated communism not socialism.
15. Amos said...
The smallish Bradford and Bingley going down has triggered a potential 15bln call on the other banks via the FS compensation scheme.
If another 10 institutions went then that would rise to 150 bln which would destroy the still solvent banks. How could they pay?
16. Stevie Dee said...
I love this deal. We needed to contain BTL, which really did inflate this market to the extent, that even the village idiot was buying houses (portfolio). Now, we the taxpayer have all these people contained, and there lovely portfolio's it's a coup. Now we can introduce the BTLer's friends the HMRC. And they can have a chat to them about their books. I would not want to be a BTL now. Screwed on house prices coming down & also outstanding payments of tax from BTLers (backdated). If there are irregularities, just seize the BTLer assets, basically squeeze these parasites dry. Also receiving £612m from Santander for the branches and depositors, owed £21bn from the other banks in the compensation package. Who, thought of this should be applauded, one for the swiftness, but secondly for the ingenuity. The government doesn't lose - Simply marvellous.
17. paul said...
justwatching, debt is a commodity.
Let's say that you are a private buyer of debt, as private B&B, I am a seller. I sell you £50bn of debt saying that when this stuff matures (when the mortgages are paid), it will be worth £90bn, so this debt is a bargain - go on - snap it up!
You commit to "buy £50bn of debt, based on the maturity value of £90bn in 2067".
My company fails because those evil nasty credit ratings agencies think that my £50bn of debt is toxic subprime sludge, which will never realise its full value. And I go running to the Chancellor and the Bank of England and say
"Waaah. Big bad credit agency did a bad thing to me and now i can't play any more!"
and the Tripartite Arrangement ("The Bailout Cabal") say
"There, there, don't worry we'll take all of this off you and make the taxpayer pay that £90bn in 2067. Now you run along home and don't forget to pick up your £500,000 good attendance bonus on the way."
18. Stevie Dee said...
@Paul.. I think this a good deal.. Darling could hardly contain himself this morning. Which usually means a "Result". Let's face it, in uncertain times, and the fruit cases in States. We all need some good news. But I loved reading your comments, did make me laugh, especially the "Waaah. Big bad credit agency did a bad thing to me and now i can't play any more!" bit.
Incdentally P4AC, are you Big Man, 50 dollar, I give you good time.. lang time Amewican?
19. uncle tom said...
Justwatching,
B&B have roughly £50bn of outstanding mortgages, funded by roughly £20bn from deposit accounts and £30bn from the money markets.
The money market cash is negotiated as short term loans that has to be periodically paid back and borrowed again. Because their commercial viability is in doubt, the markets are refusing to renew their loans and they have therefore collapsed.
Now that they have been nationalised, the money market cash will be replaced with cash raised through the sale of Gilts.
Because the interest on Gilts is much lower than that charged for the mortgages, the government would reap a theoretical profit of more than £1bn a year, if none of the mortgages defaulted.
However, because B&B's mortgage book is so toxic, and has such a high prospect of serious defaults, the taxpayer is certain to lose money from this. The eventual net loss will probably be in the region of £3bn - £5bn
20. Stevie Dee said...
I know fair bit about renewables.. and £20bn in off shore wind farms is really a non-starter. Tidal energy, was always our greatest national asset in terms of renewables. Secondly, we have at least 200 years of coal, we have the technology and the engineering brains to build these power station if required. And we have a regular supply of gas from Norway, if we required more. We would simply need to build more pipelines. As for nuclear, they are useful, ask the Iranians. So energy Armageddon, is not around the corner, despite the scare mongering. The greatest threat to mankind is over population. And in truth we (mother earth) require a cull. Harsh but true.
21. timmy t said...
UT - heard Robert Peston saying this morning that the deal is basically insured by the Financial Services Compensation Scheme so B&B's losses will be paid for by the banks. No doubt this cost would just be passed on to customers so we get the bill anyway - just as bank customers rather than taxpayers! Screwed either way...
22. mark wadsworth said...
Those idiots.
"Debt for equity swap" is my new mantra.
The gummint should appoint an administrator/liquidator who says to the long term creditors/bondholders of B&B, "Sorry chaps, you aren't getting your money back. We are going to cancel half of what the B&B owes you and give you new shares instead."
Hey presto, B&B recapitalised! What people seem to overlook is that a bank's own capital is merely a balancing figure - they have assets (money that they have lent out to borrowers and will hopefully be paid back with interest) and liabilities (money that they have borrowed from depositors & bond holders). If A > L, good. If A < L, then oops, the quickest way of fixing this is reducing the liabilities, e.g. via debt-for-equity swap.
23. planning4acrash said...
Matt, if all of this passes, we have a hybrid of communism and western markets. I would call it Marxist Corporatism.
24. Stevie Dee said...
To be honest P4AC, as long as we can sort this bloody country out after Bush & Blair, I don't care if they call it the BBC.
25. mark said...
How much more debt can the taxpayer hold? Surely there is some rule that stops us taking too much more on??????
26. Luckyjim said...
Mark Wadsworth
So if you had your savings in the B&B you would be given new shares instead of your cash ?
There would be queues outside every bank in the country if that was allowed to happen. It is fair enough for shareholders to lose their money (as they have) but deposits must be guaranteed.
I am confused by this deal. The savings have been sold to Satinder but presumably B&B don't have that money available in cash - but Satander don't have the assets (the loans). So, in answer to justwatching's question, I guess the gov has paid the value of the assets to Satander.
27. Fair_deal said...
folks, this may be a naive question but eating my head -
What happens to the mortgage when the lender goes bust. Do they get a payment holiday ? i.e eg. I borrowed £200,000 from B&B last year and this year they are no more. Do I not have to repay my mortgage then ? I think by law I am obliged to pay to B&B not to someone who takes it over. So do my obligation end with demise of B&B ?
28. eyeoftheweasel said...
Mark,
That financial wizard Darling can just wave his wand of devaluation or call on his magical staff of hyperinflation, then the taxpayer can hold as much debt as he likes.
29. icarus said...
Why wasn't Santander offerred the whole of B&B at its market value on a take-it-or-leave-it basis?
I know Santander is more international than most Spanish banks, but how is it making these acquisitions when Spanish banks as a whole are borrowing heavily from the ECB? When JP Morgan acquired Bear Stearns and Wa Mu the deals were structured to help JPM rather than to 'rescue' any other bank/brokerage. Are these deals structured to help Santander?
30. icarus said...
mark wadsworth 10.19am - That makes sense. Other market solutions were suggested in place of the US $700 billion bailout. You say 'idiots', in the US case commentators said the bailout made little sense. Maybe they aren't idiotic or illogical. Maybe they have other priorities.
31. handle_it said...
What market share did BB have in BTL ? I'm really not happy about being shafted twice ! Firstly I'm priced out an affordable home then stiffed again as a taxpayer (that's as long as I still have a job) whilst the fat cats walk away laughing. How much more of this toxic debt is out there ? And with whom ? If the stuff on BB's books stinks then there's no reason to believe it's any different else where...
32. Tom101 said...
Anyway whats on tele tonight?
33. wiltshire said...
icarus @ 29, Santander will have been offered the whole of B&B and will probably have been offered several billion to take the mortgage book. The simple fact is why would they want a mortgage book that is depreciating at an unprecedented rate each day? Santander had the government were over a barrel and therefore will have dictated the most preferable terms they could knowing that had there been a run on B&B this morning god knows what might have happened.
handle_it @ 31, there's going to be a hell of a lot more shafting going on over the next few years.
34. Stevie Dee said...
"make best of a bad job".. the spokesman said.. the staff will be helping HMRC with their enquiries.
35. icarus said...
wiltshire @29 - perhaps, but why were Santander in a position to dictate terms? After all, the City is on the hook for £9 billion+ over this deal.