Bradford & Bingley FalloutPosted on: 30 September 2008 by Gareth Hargreaves
How the bank's transfer to Abbey and nationalisation will affect savers and mortgage borrowers.
Bradford & Bingley's UK and Isle of Man retail deposit business along with its branch network has been transferred to Abbey National plc, the Chancellor of the Exchequer announced on 29th September 2008. The remainder of Bradford & Bingley's business will be taken into public ownership.
By order under the Banking (Special Provisions) Act 2008, this action by the Tripartite Authorities - HM Treasury, the Bank of England and the Financial Services Authority - should protect savers' money by transferring their money to Abbey.
Following recent turbulence in global financial markets, Bradford & Bingley has found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution. The FSA determined on Saturday morning that the firm no longer met its threshold conditions for operating as a deposit taker under the Financial Services and Markets Act 2000 and FSA rules.
The Government, on the advice of the FSA and the Bank of England, acted to maintain financial stability and protect depositors, while minimising the exposure to taxpayers, bringing about the part public, part private solution.
Bradford & Bingley's branches, call centres and internet operations will be open for business as usual. Customers should continue to use their normal branches to access their accounts. The transfer of the retail deposit book has been backed by cash from HM Treasury and the Financial Services Compensation Scheme (FSCS).
B&B will not keep its separate FSCS registration, so B&B savers who also have money in either Alliance & Leicester and Abbey that all adds up to more than £35,000 may need to move it again to a different bank group to stay below the compensation limit.
Though their money remains safe and secure, savers must monitor their rates, advises Martin Lewis, creator of MoneySavingExpert.com.
"B&B savers are in a much safer position now than they were at this stage last week. Then there was a risk of drowning; now they’re in a lifeboat. Yet as they’re breathing their sighs of relief, they need to consider the interest rate they’re earning too."
"The credit crunch is boom time for savers as banks are desperate to draw money in. Yet having bought B&B’s savings book, the Abbey may decide it’s an easy source of funding and drop rates like a stone, which, as most accounts are variable rate, it’s allowed to do. Every B&B saver should be monitoring their rates regularly, at least once a month over the next six months. If your account starts paying less than 6 per cent, ditch and switch it."
The remaining assets and liabilities of Bradford & Bingley - principally comprising its mortgage book, personal loan book, headquarters and relevant staff, and treasury assets and its wholesale liabilities - will be taken into public ownership through the transfer to the Treasury of the company's shares.
Borrowers should continue to make their payments in the normal way. However these are worrying times for Bradford & Bingley mortgage customers, according to Martin Lewis.
"This is where it gets really worrying. When Northern Rock was nationalised, in order to help it repay some of its debts, it pushed mortgage rates for those no longer on fixed or discount deals to hideous penalty levels, to encourage them to ditch and switch to another lender."
"It’s possible the same will happen for Bradford & Bingley. This wouldn’t be a problem in a normal mortgage market, but right now, especially for those who’ve over borrowed, it’s incredibly tough to get a new deal. This could leave many sitting at an unfeasibly high rate, unable to deal with it. I’d urge the government to take great care; if not, we could start to see nationalised repossessions!"
Savings safety, best buy savings accounts and more advice: www.moneysavingexpert.com
Bradford & Bingley: www.bradford-bingley.co.uk
Financial Services Compensation Scheme: www.fscs.org.uk
Financial Services Authority: www.fsa.gov.uk
HM Treasury: www.hm-treasury.gov.uk
Bank of England: www.bankofengland.co.uk
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