The Bradford and Bingley was a British financial institution whose business largely consisted of the provision of finance for the purchase of housing, firstly as a building society from 1964 until 2000, and then as a bank until its demise in 2008.
The Bradford and Bingley Building Society
The towns of Bradford and Bingley are both to be found in what was once formally known as the West Riding of the county of York or what is now known as West Yorkshire. Although they were both once small rural market towns, it was Bradford that become the wool capital of the world and was granted city status on the 9th June 1897, and therefore became the more significant conurbation.
The Bradford Second Equitable Benefit Building Society was founded in 1851 but later adopted the more succinct name of the Bradford Equitable Building Society in 1946. As it was, the year 1851 also saw the foundation of the Bingley, Morton and Shipley Permanent Benefit Building Society which similarly decided to rename itself as the Bingley Building Society in 1929. In 1964 the two societies merged to form the Bradford and Bingley Building Society creating what was at the time the nation's eighth largest building society.
After merger talks with the Yorkshire Building Society later came to nothing, the Bradford and Bingley then embarked on a strategy of growth through acquisition, and hoovered up a number of smaller societies such as the Spread Eagle Building Society (1980), the Hyde Building Society (1981), the Heart of Oak and Enfield Building Society (1982), the Stanley Building Society (1986) and Chilterns Building Society in (1987), followed by the Sheffield, Louth Mablethorpe and Sutton, and Leamington Building Societies in 1990 and the Hampshire and Hendon Building Society in 1991. Throughout this time the Bradford and Bingley became well-known thanks to a series of press and television advertisements that featured two bowler-hatted gentlemen named Mr Bradford and Mr Bingley. Although this long-running campaign was later abandoned in the 1990s on the grounds that it was sexist, the Society retained the bowler hat as its corporate logo and once spent more than £1,000 on Stan Laurel's bowler hat when it appeared up at auction in 1995, which it then put it on permanent display at their head office. It later revived the image in an advertising campaign that featured a fetching young lady in a bowler hat "skipping down the high street, promising to make dreams come true".
Thanks to the Building Societies Act 1986, such societies were permitted to effectively convert themselves into limited companies in a process that became generally known as demutualisation. Initially the Bradford and Bingley stood aloof from the mania for demutualisation that gripped the building society movement during the late 1990s, as its management appeared committed to retaining its mutual status. However a thirty-five year old plumber named Stephen Major led a campaign to force the management to change its mind and, having won a vote in favour of the principle of demutualisation in April 1999, he duly did so. The Society's management felt obliged to follow its members' wishes and in July 2000 the Society formally passed a resolution to convert itself into a public limited company, and on the 4th December 2000 Bradford and Bingley plc made its debut on the London Stock Exchange.
The Bradford and Bingley plc
Whilst it was still a building society the Bradford and Bingley had made some efforts to diversify its business. Back in May 1997 it had spent £64 million on buying Mortgage Express, previously the 'specialist mortgage lending arm' of Lloyds TSB. In the following year it acquired Black Horse Estate Agents, which was yet another business deemed surplus to requirements by Lloyds TSB, and in 1999 it had brought John Charcol, regarded as Britain's leading independent financial advisor. Under the guidance of its chief executive Christopher Rodriguez, the company's strategy was to build a network of independent financial advisors, and so made a number of further acquisitions in the sector such as Holden Meehan, and Aitchinson and Colegrave which it purchased in 2003, whilst it also built up a large estate agency network. Of course the idea was that these networks would by their very nature feed business through to the core banking activity. Unfortunately, neither the IFA network nor the estate agency business generated any significant improvement to profits and after Christopher Rodriguez stood down as chief executive in March 2004 and was replaced by Steven Crawshaw, it was time to adopt an alternative strategy.
By the end of 2004 the Bradford and Bingley had announced the sale of both its IFA and estate agency businesses, and that its focus would now be on mortgages. Under Crawhsaw's rule the company's "mission" was to "lead the UK's specialist lending market". What this meant in practice was that the bank focused on a "range of niche areas", being the buy-to-let and self-certified mortgage markets together with so-called "lifetime mortgages".(1)
During the years 2004 to 2007 it was the buy-to-let niche that proved to be the most successful, as the Bradford and Bingley emerged as Britain's biggest buy-to-let mortgage lender, until 60% of its mortgage book consisted purely of buy-to-let business. Crawhsaw explained this success in buy-to-let by claiming that "Many big banks have tried and found they don't understand it", although with hindsight it might be argued that many of the big banks understood it only too well, and left it well alone. As far as self-certified mortgages were concerned much of the business flowed through from a deal it had struck with GMAC, later GMAC-RFC, back in 2002, under which the Bradford and Bingley undertook to buy-in business originated by that company, together with a similar deal it later struck with the Kensington Mortgage Company (a specialist in "non-conforming, and impaired credit cases")in 2005.
Everything started to go wrong with the collapse of the Northern Rock in September 2007, following the demise of the mortgage securitisation market. Like many financial institutions that were active in funding the UK housing market, the Bradford and Bingley had come to rely on such wholesale lending markets to fund its lending, and although it had some £21 billion worth of retail deposits on its books, it had lent out £42 billion. However although the Bradford and Bingley was frequently referred to as being 'in trouble' during the initial phase of the Global Banking Crisis, it hadn't been quite as reckless as the Northern Rock in that it hadn't relied so much on short-term credit lines and was therefore able to weather the storm.
Nevertheless, question marks raised over the quality of the business being introduced through the GMAC-RFC link, which together with the expectation that the rapid decline in the housing market would result in significant losses, suggested that the Bradford and Bingley might therefore be in need of additional capital. In April 2008 rumours spread that the company was about to launch an emergency rights issue. Although these rumours were denied by Steven Crawshaw it was duly announced in the following month that there would indeed be a £300 million rights issue.
This rights issue was then withdrawn in June 2008 when the Texas Pacific Group came forward and agreed to pay £179 million for a 23% stake in the company, and Bradford and Bingley announced a restructured rights issue which would raise a further £258 million. However at the beginning of July, Moody's Investors Service issued a downgrade of the bank's credit rating based on its "continuing obligation to acquire mortgages from GMAC-RFC", since these mortgages had "displayed a significantly faster deterioration of asset quality than the own-originated loan portfolio of Bradford and Bingley". This news persuaded the Texas Pacific Group to pull out of the deal, and forced the company to put forward yet another revised rights issue which proposed raising an additional £400 million.
In the circumstances it was easy to understand why only three-quarters of shareholders took up their rights, and the remainder was left with the underwriters, whilst it apparently took a certain amount of arm twisting by the Financial Services Authority to persuade the likes of Standard Life and Legal and General to lend their support to the rights issue.
The end of an era
One of the casualties of the rights issue saga was chief executive Steven Crawshaw, who resigned on the grounds of ill health in June 2008. The Company's chairman Rod Kent took over as acting chief executive, until it was announced in August 2008 that Richard Pym, who had previously run the Alliance and Leicester, would be the new chief executive. Later that same month the bank announced its results for the first six months of 2008, and although it had made an overall loss of £26.7 million, it claimed to have made an underlying profit before tax of £70.2 million. In the context of the additional £400 million it had recently raised, losing £27 million odd did not seem all that bad, whilst thanks to the rights issue the Bradford and Bingley was actually quite a well-capitalised bank in comparison to its peers.
On the 24th September the bank announced that it had renegotiated its deal with GMAC-RFC, and on the 25th September it announced 370 redundancies as a result of its decisions to close a mortgage processing centre at Borehamwood in Hertfordshire, reduce its intermediary sales team, and get rid of every single one of its remaining branch-based mortgage advisers. The chief executive Richard Pym appeared confident that the Bradford and Bingley was a "strongly capitalised bank" and that the board was "planning to put the problems of the past behind us and have a business which is fit for purpose going forward." Unfortunately the stock market appeared to disagree; the redundancy announcement was interpreted as meaning that the company was now closed for new business, and the company's share price kept falling.
There were already indications prior to the weekend of the 27th and 28th September that anxious depositors had been withdrawing their funds from the bank, with some £300 million having being withdrawn over the previous three days, and the authorities naturally feared a return of the scenes of the previous September with anxious savers queuing outside branches. The bank's chief executive Richard Pym later cited a blog posted by the BBC journalist Robert Peston at 4.50 pm on the 26th September that mentioned the possibility of nationalisation, and said that it was at that point he realised that "things weren't looking too good".
On Saturday 27th September the heads of Britain's major banks assembled at the Treasury for an emergency 9.00 am meeting with the Chancellor of the Exchequer Alistair Darling, it being the government's objective to find someone who was prepared to take over the Bradford and Bingley.
Unfortunately Lloyds TSB had just promised to rescue HBOS, and Barclays had acquired a big chunk of the former Lehman Brothers, and neither was interested in taking on an additional burden. The same applied to Banco Santander following its purchase of both Abbey National and the Alliance and Leicester and neither HSBC nor the Royal Bank of Scotland were minded to be of assistance either. One banker described the whole meeting as "all a bit pointless" as the banks concerned "had already told the authorities repeatedly" that they "weren't interested in doing a deal" and that they "would be very surprised if anyone else wanted to buy it either". The problem being that the Bradford and Bingley's portfolio of niche mortgages was regarded as being a particularly toxic mix which no other bank was prepared to take on board.
In such circumstances the government was forced to turn to Plan B, and on the 29th September 2008 announced that it was nationalising the Bradford and Bingley under the provisions of the Banking (Special Provisions) Act 2008, passed earlier in February to permit the nationalisation of Northern Rock, which had rather fortuitously included clauses that permitted the government to acquire any other bank should the circumstances warrant such action.
However the nationalisation of Bradford and Bingley turned out to be significantly different from that of the Northern Rock, as the government immediately sold the Company's branch network together with its £21 billion of retail deposits to the Banco Santander in return for £612 million, although since this included the transfer of £208 million of capital relating to "offshore companies", the net cost to Santander was closer to £400 million. Therefore it was only the mortgage book that was taken into public ownership with the stated intention to "run off their assets in an orderly way and get back as much as possible". Thus whilst the Northern Rock had been nationalised with the stated intention of ensuring the survival of the business, the Bradford and Bingley was simply being liquidated under the auspices of the Bank of England.
Crucially however, since the Financial Services Authority had declared the Bradford and Bingley to be in default, the government was able to draw upon the Financial Services Compensation Scheme (FSCS). The former bank's default meant that the FSCS was obliged to find £14 billion to fund the transfer of the retail deposits to Santander, and since it didn't have £14 billion it was required to borrow that sum from the government at a rate of one-year LIBOR plus 32 basis points for the first three years. This meant that although the government had to put up an additional £4 billion to cover those liabilities not protected under FSCS, much of the cost of the exercise would be met by the remaining banks rather than the government. (2)
The Bradford and Bingley proved to be the last of the six former building societies that converted themselves into banks and floated on the stock exchange during the years 1989 to 2000. Its retail deposit business is now part of Abbey National plc which still continues to operate branches and trade under the name of 'Bradford and Bingley', although it is likely that this is only temporary and that it will eventually be rationalised and integrated within the Abbey operation.
NOTES
(1) A buy-to-let mortgage is one where the loan is made to fund the purchase of a property with the stated intention of renting the property out to tenants. The idea being that the rentals received would fund the mortgage payments until such time as the borrower decided to sell the property at a vast profit, since of course British house prices were expected to continue to increase at an exponential rate. A self-certified mortgage is one where the borrower isn't required to produce much in the way of evidence to support their stated income. The Americans call these 'liar loans' with good reason. A lifetime mortgage is essentially a loan advanced to someone of advanced years where repayment of the capital is only expected on death.
(2) It is believed that the missing £3 billion worth of deposits related to the deposit book of Bradford and Bingley International Limited, which being based in the Isle of Man, was not the responsibility of the British government. This Isle of Man operation also being the offshore company that possessed the £200 million or so of capital.
SOURCES
- Bradford & Bingley PLC
http://www.fundinguniverse.com/company-histories/Bradford-amp;-Bingley-PLC-Company-History.html
- B&B: Note that spelt doom for US bail-out, This is Money, 4 July 2008
http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=445804&in_page_id=3
- Graham Ashby, Bradford & Bingley shares: buy, sell or hold?, 13 Jun 2008
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2791353/Bradford-andamp-Bingley-shares-buy,-sell-or-hold.html
- Bradford & Bingley picks Richard Pym as new chief executive, The Times, August 17, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4548821.ece
- Jane Croft, Kate Burgess and George Parker, UK nationalises Bradford & Bingley, Financial Times, September 26 2008
http://www.ft.com/cms/s/0/1e5b888c-8c06-11dd-8a4c-0000779fd18c.html
- Bradford & Bingley's final moments, The Sunday Times, September 28, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4837596.ece
- Jill Treanor and Larry Elliott, Emergency meeting and failed hunt for a suitor sealed fate of ailing bank, The Guardian, Monday September 29 2008
http://www.guardian.co.uk/business/2008/sep/29/bradfordbingley.marketturmoil
- The rise and fall of Bradford & Bingley, The Guardian, September 29 2008
http://www.guardian.co.uk/business/2008/sep/29/bradfordbingley.banking
- Becky Barrow and Nicola Boden, £15bn wiped off bank shares as taxpayers pick up £40bn bill for Bradford & Bingley's bad debt
Mail on Sunday, 29th September 2008
http://www.mailonsunday.co.uk/news/article-1063361/Bradford-amp-Bingley-Bank-shares-plunge-taxpayers-pick-150bn-Superbank-Bad-Debt.html
- Harry Wallop, Bradford & Bingley: A history of how and when it all went wrong, Daily Telegraph, 29 Sep 2008
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3097348/Bradford-and-Bingley-A-history-of-how-and-when-it-all-went-wrong.html
- HM Treasury Press Notice, Bradford & Bingley plc, 29 September 2008
http://www.hm-treasury.gov.uk/press_97_08.htm