UK in talks on B&B rescue, nationalisation threat

Regulators and politicians were locked in talks over the future of troubled lender Bradford and Bingley yesterday, raising the prospect that a second British bank could be nationalised.

Bradford and Bingley shares tumbled to a record low on Friday and the cost of insuring its debt jumped, prompting regulators to step up efforts to find potential white knights for the bank, hit by the credit crunch and Britain's sliding housing market.

The Financial Services Authority (FSA) and Treasury officials were meeting over the weekend to discuss rescue options, two people familiar with the matter said.

"The Treasury, the FSA and the Bank of England are working closely with Bradford and Bingley to consider the implications for their business of the recent financial turmoil," a Treasury spokesman said.

A Treasury source said further details of the discussions were expected to be announced before markets open on Monday.

"There are contingency plans," the source said.

Major banks were last week sounded out about rescuing the lender, but none were keen to take on its lending book at a time of weakening house prices, industry sources have said. One option is to arrange a 'lifeboat rescue', where all the major lenders would take a share of B&B's mortgage book to help shore up confidence in the financial system.

Britain's top five banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS - and Abbey's Spanish owner Santander already own about 30 per cent of B&B between them after they stepped in to help save a rights issue that flopped in June.

But a reluctance among rivals for a rescue deal has increased the prospect the lender could be nationalised and merged with Northern Rock, the bank that was taken over in February after the government failed to find a rescuer.