Losses at Bradford and Bingley, related to the US sub-prime debacle, have sent shockwaves through the financial sector, with share prices falling rapidly on February 13. The bank is now valued at just £1.2 billion.
A rapid increase in mortgage arrears, heavy debts and a decline in profits saw the company's shares drop 23 per cent on Wedneday to below the float price eight years ago. Its financial report revealed that profits totalled just £126 million for the six months ended December 31 compared with £246.7 million for the prior-year period.
Shareholders appeared thoroughly taken aback that the buy-to-let specialist should be so badly affected by the sub-prime situation, which has left it with writedowns of £94 million.
Although sub-prime lending accounts for just six per cent of the UK mortgage
market, the implications of the crisis have been far-reaching. Bad debt provisions on the company's UK mortgage portfolio trebled to £22.5 million in 2007.
Furthermore, repossessions reached 560 in 2007, up 74 per compared with 2006 figures. Meanwhile, in the last three months of 2007, the number of Bradford and Bingley customers with mortgage arrears totalled 6,170 compared with 4,337 during the corresponding period in 2006.
Other banks including Barclays, Alliance and Leicester and Royal Bank of Scotland have seen share prices fall following the news from Bradford and Bingley. Confidence in the financial sector continues to fall, with the Northern Rock fiasco still uppermost in people's minds. Reports of further writedowns from other lenders are now widely anticipated.
© Fair Investment Company Ltd