Troubled bank Bradford & Bingley, which has seen its share price crash, is to be nationalised, the BBC has learned.

Officials from the Treasury and the Financial Services Authority (FSA) have been in talks with executives from the bank in a bid to secure its future.

BBC News business editor Robert Peston says the Treasury will then speedily sell B&B’s 200 branches and its savings business to a bank or number of banks.

But the British Bankers Association is unhappy at some aspects of the plan.

‘Difficult choices’

Association chief executive Angela Knight told BBC Five Live she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.

She said: “I’m not comfortable with that, I don’t know anybody who is comfortable with that. There’s a series of difficult choices here.

“The financial services industry underpins, not just the UK economy, but indeed all of us individually, and there can be times where authorities have to step in.”

She added that it was a “very great shame that it’s got to this place”.

But our business editor said that B&B was getting “perilously close to a funding crisis… there had to be a solution”.

Loans nationalised

B&B’s share price has plummeted and it has announced plans to cut 370 jobs due to a downturn in the mortgage market.

“Why don’t they have the sense to nationalise the things that matter – Water, Electricity, Gas, Railways etc, etc” Colin, Plymouth, UK

The bank will be nationalised using special legislation the Treasury put through when it took Northern Rock into public ownership earlier this year.

The measure is expected be announced on Sunday night or Monday morning.

The Treasury and FSA will negotiate with banks interested in buying parts of B&B. Possible buyers included Santander of Spain, HSBC and Barclays.

Santander, which already owns Abbey and Alliance & Leicester, has been looking at B&B for some time.

“The nationalisation and break up of Bradford & Bingley will represent a momentous event in the history of British banking” Robert Peston

B&B’s £50bn of loans, including £41bn of home mortgages, will not be sold and will be nationalised on a long-term basis. The mortgages may be given to the nationalised Northern Rock to manage.

The bank experienced significant withdrawals of cash from its branches and online bank on Saturday amid customer concerns about its situation.

‘Less vulnerable’

The Treasury’s decision to sell B&B’s savings business means depositors and savers’ money should be safe.

“In terms of UK banking problems, the nationalisation of Bradford and Bingley should be the last of the banking accidents here,” our business correspondent said.

He said there was a class of bank that had relied heavily on the mortgage market – Northern Rock, HBOS, and B&B – and which had now either been nationalised or taken over.

“The remaining banks have much broader bases, they are less vulnerable,” he added.

However, B&B’s shareholders and holders of its subordinated debt may lose out.

Our business editor says the nationalisation and break-up of B&B represents a momentous event in the history of British banking.

“We can assure customers that their deposits are safe with Bradford & Bingley” Tony McGarahan Bradford & Bingley spokesman

He said: “It will mean that every building society that floated on the stock market in the wave of demutualisations of the past two decades will either have collapsed or been sold to a conventional bank.”

B&B was close to seeing a demand from depositors for the return of billions of pounds, which it would have been unable to find.

Credit rating agencies had been downgrading the rating of its covered bonds, a form of funding which involves packaging up mortgages for sale to investors.

Liberal Democrat treasury spokesman Vince Cable said: “There doesn’t seem to have been a white knight in the offing. The alternative otherwise was just to let the thing go bust and protect the depositors”.

Bradford & Bingley spokesman Tony McGarahan said discussions were taking place and an announcement would be made before the stock market opened on Monday.

“We can assure customers that their deposits are safe with Bradford & Bingley,” he said.

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The new chairman of the Financial Services Authority (FSA) has said it could penalise banks who pay bonuses that encourage excessive risk-taking.

Lord Adair Turner told BBC News that the FSA would not regulate how much was paid, but would ask banks to explain their bonus structures.

Banks found to encourage risky actions could be compelled to hold more capital, raising their costs.

Some believe bonuses should be based on longer-term results.

“What we are now doing is saying to banks, explain to us what your structure of bonuses are,” said Lord Turner.

“If we think they are in danger of encouraging people through that bonus structure to take risky actions which appear to look good at the time, but which create toxic assets for the future, then we have the power to say if you want to do that, you’ve got to hold a bit more capital because we think you’re a more risky institution.”

‘Back to basics’

There has been criticism that the bonus culture in the City contributed to the current financial crisis. However Lord Turner said this aspect should not be overstated.

He said other factors would be more important in ensuring there was no repeat of the credit crunch and the subsequent financial turmoil.

Lord Turner said regulators should, for example, monitor much more closely the level of liquidity in the system.

“We have to go back to basics in regulatory terms to make sure this doesn’t happen again in five or 10 years’ time,” said Lord Turner, who took over at the helm of the FSA on Saturday.

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Shares in Bradford & Bingley (B&B) climbed strongly in early trading on Monday, amid reports that it could be the next bank in line for a takeover.

Several reports suggested that the Financial Services Authority (FSA) has been holding talks with potential buyers, should B&B hit difficulties.

However, The Times said there was no firm interest so far, despite the overtures of the City watchdog.

The HBOS takeover by Lloyds TSB was given FSA and Treasury encouragement.

B&B shares were up as much as 10%, but ended the day 1.7% higher at 28.25 pence.

Royal Bank of Scotland shares were also up- which analysts said was on the back of plans for the US Treasury to create a ‘super-bank’ to buy mortgage-related debts from financial institutions.

Banks eligible to dump their toxic investments into this Treasury-backed bank would include RBS, which has a big retail business in the US.

“The absence of any such bidders so far adds to the uncertainty about B&B’s future” Sandy Chen Analyst, Panmure Gordon

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‘Bad sign’

According to the Sunday Telegraph, the FSA has been in contact with Abbey’s Spanish owner Santander, which recently bought Alliance & Leicester.

And the regulator has also been in touch with Dutch banking group ING and National Australia Bank – owner of Yorkshire and Clydesdale banks – to gauge interest, the paper said.

But the lack of firm interest was a “bad sign” said Panmure Gordon banking analyst Sandy Chen.

He warned that uncertainty could even lead to B&B customers taking their money out of the bank.

“The absence of any such bidders so far adds to the uncertainty about B&B’s future, in our view,” Mr Chen added

“Our concern is that significant retail deposit outflows may occur, forcing B&B to rely even more heavily on expensive wholesale funding.”

B&B has been badly hit by the credit crisis and a sharp downturn in the buy-to-let market.

It reported a loss of £26.7m for the six months to the end of June, against a £180.4m profit last year.

This included a sharp rise in credit impairment charges for the six months to £74.6m, up from £5.3m in the same period last year.

B&B recently completed a £400m share rights issue in order to improve its balance sheet.

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The City regulator has announced restrictions on short-selling, whereby traders bet on share prices falling, in a bid to tackle market instability.

The Financial Services Authority (FSA) is clamping down on the practice that some believe contributed to the sharp falls in HBOS shares in recent days.

Some analysts argue that short-selling was a factor that led to the £12.2bn takeover of HBOS by Lloyds TSB.

The changes will be effective from midnight on Thursday.

The restrictions, which will be in force until 16 January 2009, will be reviewed after 30 days.

“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” said FSA chief executive Hector Sants.

“There is a danger in a trading system which allows financial institutions to be targeted and subject to extreme short-selling pressures” Callum McCarthy Financial Services Authority chairman

‘Financial stability’

Short-selling is a technique that sees investors borrow an asset, such as shares, currencies or oil contracts, from another investor and then sell that asset in the relevant market hoping the price will fall.

The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Anyone can short a position in a company’s shares, but typically hedge funds are the main players.

Chancellor Alistair Darling welcomed the move by the FSA.

“I believe it is the right thing to do in the current market conditions and in the interests of financial stability,” he said.

Markets have fluctuated hugely in recent days, with fundamental changes occurring in the financial landscape.

There are fears that several firms, including Lehman Brothers, which filed for bankruptcy at the start of the week, and insurance giant AIG, which was rescued by the Federal Reserve, were targeted by those short-selling.

Speaking to the BBC, Mr Darling underlined that short-selling was not wrong in itself.

“It can help actually in providing funds, liquidity, for companies.”

But he added that it could become a problem where people “deliberately” manipulate a market, making “a difficult situation even worse”.

Callum McCarthy, chairman of the Financial Services Authority, expressed concerns over recent volatility.

“There is a danger in a trading system which allows financial institutions to be targeted and subject to extreme short-selling pressures, because movements in equity prices can be translated into uncertainty in the minds of those who place deposits with those institutions with consequent financial stability issues.”

Broader moves

It was not only in the UK that attempts were being made to address short-shelling.

The US financial regulator, the Securities and Exchange Commission (SEC), also announced restrictions on short-selling on Wednesday.

And on Thursday, New York attorney general Andrew Cuomo said he would start a probe into short-selling.

At issue is whether certain traders exploited short-selling to push down stock prices, breaching market rules.

New York’s state pension funds said it would cease lending stocks in 19 firms to short-sellers on a temporary basis.

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Five motor dealerships have been fined by the Financial Services Authority (FSA) for mis-selling payment protection insurance (PPI).

Between them the five were fined a total of £175,000.

The FSA said there had been “serious breaches” of the rules and that 2,175 customers had been put at risk of buying polices that were unsuitable.

PPI was sold so that people could repay their car loans if they fell sick or lost their jobs.

“Motor retailers that sell PPI have to meet the same standards as the rest of the financial services industry,” said Margaret Cole of the FSA.

“All firms selling PPI must treat their customers fairly, including taking proper steps to make sure sales are suitable and customers are eligible to claim on the policy,” she added.

The five dealerships are GK Group, George White Motors, Ringways Garages (Leeds), Ringways Garages (Doncaster), and Park’s of Hamilton.

The FSA said they had failed to check if the customers circumstances meant they might be excluded from claiming on a policy after it had been sold, and did not monitor the quality of advice being given by their sales staff.

‘Protection racket’

The FSA took up problems with the sale of PPI three years ago.

At the time the consumer organisation Citizens Advice dubbed the sale of PPI policies a “protection racket”, saying they were often too expensive and failed to provide the level of cover that customers thought they were getting.

This was followed by investigations by both the Office of Fair Trading and the Competition Commission.

Since 2006 the FSA has fined 11 firms and censured two motor dealerships as part of its campaign to stop people being sold policies when they are either unnecessary, not explained properly, or sneaked into the cost of a loan without the customer realising.

In June this year the Competition Commission found that people were being overcharged by the financial services industry to the tune of £1.4bn a year when they PPI policies.

It said this was due to a lack of competition, and suggested that one remedy might be a ban on firms selling the insurance when they take out loans.

The wider publicity being given to the problems of PPI led earlier this year to the Financial Ombudsman Service receiving a surge of complaints about alleged mis-selling.

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Investors have been warned to beware of fraudsters targeting former customers of a stockbroking firm that was shut by the Financial Services Authority.

The FSA said at least 10 bogus “recovery” firms were cold-calling former clients of Pacific Continental Securities, which was closed last year.

The firms have been trying to trick people into paying a fee in exchange for offering to buy their shares.

The FSA said the firms were not authorised or permitted to do business.

“These firms offer to buy the shares at an attractive price but demand an advance fee,” the FSA explained.

“This is a scam – as soon as the fee is paid, the firm disappears with the money and without purchasing the shares,” it warned.

As well as offering to buy shares directly, the bogus firms also make equally fraudulent offers to put people in contact with other potential buyers.

The regulator said it was investigating the numerous complaints it had received and advised anyone approached in this manner to contact it.

Pacific Continental securities went bust in June 2007 after the FSA withdrew its permission to trade and told it to settle its remaining business.

In March last year the firm was identified by the BBC’s Money Programme as acting like a “boiler room”, a fake stockbroking outfit which uses hard-sell techniques to deceive people into buying worthless shares.

Boiler rooms usually operate from foreign countries outside the direct control of the UK authorities.

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Nationwide is planning to expand into the Irish Republic next year, giving the UK’s largest building society access to European funds to help combat the effects of the credit crunch.

The mutual has already approached the Financial Services Authority and the Irish Financial Services Regulatory Authority over the move and expects to begin operating early next year.

A spokesman described the decision as a “prudent strategic move … to further diversify its geographical operations and funding opportunities.” The move will give Nationwide a foothold in the eurozone, which would give it access to some of the European Central Bank’s funding for fin-ancial institutions to help ease the effects of the credit crunch.

The building society has more than 800 branches, controls half of all mortgage lending business and is the second largest savings provider in the UK.

However, Nationwide’s Republic of Ireland customers will not enjoy the same range of products as their UK counterparts. Customers in the Republic will have access to just two products – an instant access savings account and a fixed-rate bond, available by phone, post or online.

A spokesman for Nationwide said: “It is too early to say how the interest rates for these products will compare to the UK market, although they will be competitive for the Irish market.”

There are no immediate plans to open branches in the Republic or offer customers more complex products like mortgages. This also means that Irish customers will not have access to the membership and voting rights that Nationwide’s UK investors enjoy.

“This is a relatively small but growing market and there could be scope for a more wide-ranging product line in the future,” the spokesman said.

Further details of the expansion will be made available after formal applications to the UK and Irish regulators.

News reported by The Independent

The Financial Services Authority (FSA) has fined the UK arm of Credit Suisse £5.6m for mis-pricing some asset-backed securities.

The breaches involved Credit Suisse’s Structured Credit Group (SCG) which specialised in complex, high-risk financial products.

The FSA said the bank had failed to recognise for five months that some of SCG’s valuations were wrong.

Credit Suisse said it had commissioned a “detailed review” of the causes.

Risk controls ‘imperative’

Credit Suisse announced on 19 February – a week after it issued its financial results for 2007 – that it had identified pricing errors by a small number of traders and that it was re-pricing certain asset-backed securities.

“The [Credit Suisse] subsidiaries here failed to… control the potentially high risk combination… of exotic products, opaque valuations and high leverage” Margaret Cole, FSA director of enforcement

As a result of the re-pricing, it announced a write-down in the value of its revenues by $2.65bn (£1.4bn).

“This incident was unacceptable to me and the executive board,” said Credit Suisse Group chief executive Brady W Dougan.

“Our overall control framework remains sound and we have taken actions to implement a remediation programme to address the findings of our internal review,” he added.

The £5.6m fine is not the largest the FSA has imposed, but the financial regulator said it reflected its policy of imposing higher penalties to achieve “credible deterrence”.

“It is imperative, particularly in more challenging financial conditions, that firms have in place appropriate systems and controls to manage their risks,” said the FSA’s director of enforcement Margaret Cole.

“The subsidiaries here failed to take appropriate steps to control the potentially high risk combination in the Structured Credit Group’s holdings of exotic products, opaque valuations and high leverage,” she said.

News reported by The BBC

The Financial Services Authority (FSA) has been accused by mortgage lenders of being “unfair” in its recent criticism of their repossession policies.

Last week the regulator warned it would take action against lenders who were too aggressive to customers in arrears.

But the Council of Mortgage Lenders (CML) said the FSA was wrong to suggest the whole industry was at fault.

The FSA replied that potential problems with repossession policies were found with all types of lender.

“There were issues discovered across the piece with all lenders which is why the warning was addressed to the whole market place,” said an FSA spokeswoman.

Unhappy

The unusual public spat between the two bodies hinges around a press release published on 5 August.

“In tarnishing the whole industry with the same dirty brush, is the regulator treating lenders fairly?” CML

In it, the FSA published the findings of a “thematic review” of how lenders deal with customers who are behind with their mortgage repayments and thus are in danger of losing their homes.

The regulator did acknowledge that the aggressive approach of which it disapproved was not typical of mainstream lenders, but was more usually found among specialist lenders.

It found that they were too keen to repossess at the first sign of a customer’s financial problems.

But the CML is very unhappy about the presentation of the FSA’s findings, which it said were confusing to lenders and in danger of misleading the public.

“The key message given to media and the industry was that lenders are failing to treat customers fairly,” the CML responded in its latest fortnightly newsletter.

“But in tarnishing the whole industry with the same dirty brush, is the regulator treating lenders fairly?”

“To publish a report in such ambiguous terms is unfair and confusing for the majority of lenders who are making significant efforts to comply [with industry rules],” it added.

Payment problems

Recent figures have shown that repossessions are on the rise, going up by 41% in the first half of the year, and are expected by lenders to reach 45,000 in total this year.

Although that would be a level of repossession that is far lower than in the housing recession of the early 1990s, there are many more potential problem cases in the pipeline.

The CML estimates that by the end of the year there may be 170,000 people who are more than three months behind with their repayments.

The FSA responded by repeating its earlier conclusions about mainstream mortgage lenders.

It said it had found that some of them could do more to help with their customers’ arrears; levied unfair charges on customers; and didn’t pay enough attention to the way debt recovery agencies or bailiffs acted on their behalf.

News reported by The BBC

A mortgage broker who submitted false mortgage applications to lenders has been banned for life by the Financial Services Authority (FSA).

Omotayo Fawole who ran Oasis Mortgage and Financial Services, in Woolwich in South East London was also fined £100,000 by the city watchdog.

So far this year the regulator has taken similar action against 17 other brokers, mainly in London.

Mr Fawole’s actions were described as “serious and blatant”, the FSA said.

“He poses an immediate risk to lenders, ” added Margaret Cole of the watchdog.

“We have banned a number of mortgage brokers and others this year in connection with mortgage fraud and we will continue to make examples of people who commit mortgage fraud until behaviour changes.”

Tip-offs

The FSA said Mr Fawole had lied by exaggerating his income to obtain a mortgage for both himself and an employee.

The regulator has been worried about mortgage fraud for the past two years, a problem which is now leading to losses at some lenders such as the Bradford & Bingley.

In July the FSA called on more lenders to tip it off about suspect applications and brokers.

So far it has received about 300 tip-offs, but only from 35 of the UK’s 150 lenders.

It now wants the others to be more vigilant.

It has also said it is worried about the potential for fraud against lenders who give mortgages on inflated valuations to buyers of newly built city-centre flats.

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