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B&B's rising arrears

• Robert Peston
• 2 Jun 08, 08:59 AM

shares have dropped sharply again this morning following its warning of worsening arrears on the buy-to-let mortgages it provides.

It blames the problems experienced by its borrowers on worsening economic conditions which have led to house price deflation.

The value of its buy-to-let mortgages where borrowers are either more than three months behind with payments or the properties have been repossessed has jumped from 拢828m at 31 December to 拢1.1bn at 30 April.

Other bad news is that the profit margin on its lending remains under pressure - because, like all banks, the cost of raising money for Bradford & Bingley remains high.

And it has suffered further charges on its so-called structured finance portfolio, or its foolish investments linked to US subprime.

Putting this altogether means that for the first four months of 2008 Bradford & Bingley made a loss of 拢8m - far worse than the City had been expecting.

But the City watchdog, the Financial Services Authority, believes the pain will be restricted to shareholders - and there is nothing to alarm those with savings in the bank.

Even for shareholders there is some good news - with the announcement that the renowned private equity investor, Texas Pacific Group, is paying 拢179m for a 23% stake in Bradford & Bingley.

Although TPG is only paying 55p per share for this stake - around 90% below Bradford & Bingley's share price in 2006, the housing market's year of unsustainable bliss.

UPDATE 09:26: Other British banks are jumpy this morning, having seen B&B slip on its banana skin.

Royal Bank, which hopes to avoid the humiliation of seeing its rights-issue shares fall into the hands of underwriters, has put out a statement that its UK buy-to-let mortgages represent only 1% of its UK loan portfolio and that there has been no deterioration in its trading performance since its last statement on April 22.

It is shouting at investors that they shouldn't assume that B&B's difficulties are a harbinger of horrors at RBS - although RBS's share price has this morning slipped just a little bit nearer that fateful rights price.

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