Bradford & Bingley

Bradford & Bingley did not demutualise which is British for going public until December 2000, but it was the merger of two old building societies who can trace their roots back to 1815.

Bradford & Bingley Building Society was formed in 1964 as a result of the merger of the Bradford Equitable Building Society and the Bingley Building Society, both of which were established in 1851. In July 2000 the Society’s voting members overwhelmingly endorsed a proposal from the Board of Directors to convert to a public limited company. The flotation on the London Stock Exchange took place on 4 December 2000 and Bradford & Bingley plc (“B&B”) was formed.

On Monday 29 September 2008 that with the credit criis casting a pall over the European economy that same company was nationalized.

Mortgage lender Bradford & Bingley confirmed Monday it is to become the second bank nationalized by the British government since the financial crisis began.

In a deal hammered out with Spanish bank Santander, B&B was being taken into public ownership after uncertainty over its future prompted savers to withdraw “tens of millions of pounds.”

British Finance Minister Alistair Darling said B&B assets were sold to Santander’s Abbey division for just over £600 million pounds, or about $1.1 billion.

So, over the course of a typical weekend more than 150 years of toil and profit were rolled up into a tidy little package, marking the end of the end, but to find the beginning of the end we must go back not surprisingly, to the beginning of the new century and credit bubble.

It was then that chief executive Christopher Rodrigues rid the company of the pomposity, but stability of its old ways and old logo, Stan Laurel’s bowler hat the company paid more than £1,000 for at auction and went on display in its head office.

The purchase was a witty, if expensive, nod to its corporate logo: two City gents sporting pinstripes and bowlers. The fictional Mr Bradford and Mr Bingley, appeared on television adverts for the bank from the 1970s, exuding an air of conservative financial solidity – underlying B&B’s position as Britain’s second biggest building society, founded in 1851 to build a better future for the people of northern mill towns.

But it was new the CEO Steven Crawshaw who put the the company on the road to ruin, and from there drove hard. It Crawshaw who personally oversaw the demutualization, resisted as it was at first, but like everything else in the credit bubble, all that was bad prevailed.

At the time the move was strongly resisted by many on the lender’s board of directors, including Rodrigues himself, but it was pushed for by many of its members. He argued it could continue to expand while remaining free from the stock exchange.

But the promise of a windfall of at least £1,000 was too much for many of its members. Customers received a minimum of 250 free shares at the flotation price of 247p when the shares started trading in 2000.

It was Mr Rodrigues’ successor Steven Crawshaw that was responsible for changing the nature of those customers.

Apparently if Crenshaw couldn’t change the nature of those customers £1,000 and 250 free shares at 247p piece could, and did.

And so the demutualization transformed the staunchly old building Society into a British countrywide financial, with wreckless leveraging and disregard to future consequences.

Traditionally, building societies relied on their savers to fund their mortgage business. For each £1 deposited, they would lend out £1 and make a profit on charging more to their borrowers than they offered to their savers.

But B&B, like many aggressive de-mutalised building societies turned to the international money markets to allow it to lend ever greater sums of money. It now has £22 billion of savers’ deposits but nearly double that in mortgages – £41 billion.

B&B was so keen to increase the number of mortgages it owned, that it hoovered up “specialist” loans from rivals, buying up its Kensington mortgage company as recently as last year, when some commentators were already starting to warn the UK housing market was unsustainable.

But the bubble burst and is always it crashed faster than it expanded. Bradford & Bingley was caught in the instantaneous shockwave of that blast and nothing was ever going to work right again. The company launched a £400 million rights issue which was not nearly fully well subscribed by shareholders leaving much of issue with underwriters, and when TPG Capital, who had previously agreed to take a 23% stake in the Company, withdrew their support it was doomed. The cutting of 350 jobs was not nearly enough to save the company and so with options and time running out the British government moved in and moved Bradford & Bingley into past history.

In the aftermath as the financial media fretted over who would keep the bowler hat, the jobless and taxpayers on who’s back road to weight of the bailout were outraged.

“The bowler hat is used for general products, mortgages and investments, so it covers both sides of the business,” says Ms Ramage, of Alexander Ramage Associates.

What it’s now worth is not clear. “It’s almost impossible to put a value on it because it’s tied up so implicitly with the assets of the business. At some point an accountant will have to sit down and say what’s it’s worth.”

How about the price of dinner to a former employee searching for the breadline, for taxpayer turned gambler.

FURIOUS critics hit out last night as the Government gambled the equivalent of £1322 for every UK taxpayer on nationalising the Bradford & Bingley.

A statement will be issued to the Stock Exchange today on Gordon Brown’s rescue plans amid fears for the UK financial system.

But there was growing anger from taxpayers’ groups and shareholders that the Government will take responsibility for “toxic debts” among the bank’s £40billion mortgage book. If property prices continue to fall and repossessions rise, taxpayers will have to pick up the bill.

It’s safe to assume that property prices will continue to fall and repossessions will rise, so a safe bet that taxpayers will have to pick up the bill.