B&B sinks to first-half loss

Troubled lender Bradford & Bingley sank to a first-half loss, hit by £155 million in writedowns and investment losses, and said bad debts had risen by more than half since the end of last year.

Britain's biggest lender to landlords warned conditions would continue to worsen through this year as margins fall, but it gave investors some good news, announcing it had renegotiated one of two contracts that have seen it forced to acquire large numbers of loans originated elsewhere and is in talks to overhaul a contract with GMAC-RFC that has boosted arrears.

"B&B results were little short of appalling, but this was expected," analyst Alex Potter at Collins Stewart said in a research note, adding the earnings outlook was "very weak".

The mortgage lender, forced to raise £400 million in a cut-price cash call this month as market conditions worsened, posted a pre-tax loss of £26.7 million. That compares with a pre-tax profit of 180.4 million a year ago.

Excluding a £127.8 million writedown on investments, losses on structured investments and some gains on debt, underlying pre-tax profit for the first half of this year totalled £70.2 million, still less than half the year ago number.

The writedowns and losses combined add up to almost half the cash raised by B&B in its emergency rights issue.

B&B's mortgage book, more than half of which is made up of loans to landlords in the so-called buy-to-let sector, has been closely watched by investors looking for evidence of worsening arrears across the UK sector, as property prices fall and consumers come under pressure.

The bank said that the number of mortgages three or more months in arrears across its book worsened to 2.29 per cent from 1.48 per cent at the end of December.

In its acquired mortgage book - which includes loans taken on from finance firm GMAC-RFC - arrears jumped to 5.11 per cent.

But the bank also showed a deterioration in organic arrears, where the total rose to 1.78 per cent from 1.2 per cent.

B&B said it was taking action to improve bad debts - tightening criteria and improving its collections process - but also extended its deal with mortgage firm Kensington to lower the amount of loans it needs to take on in this year and next year.

B&B will now acquire a total of £1.3 billion of loans by April 2011. Under the previous 2007 deal, it had committed to buying a further 1.15 billion of home loans by next March.

B&B has sunk in value since warning on profits earlier this year and later finding itself forced to overhaul its rights issue plan twice, first after a profit warning and the surprise departure of its chief executive officer and later after a downgrade from credit rating agency Moody's prompted US private equity investor TPG Capital pulled out of buying a stake.