UK bank rescue gets green light
Article source: www.iht.com
The strict European Union regulators have given a clean bill of health to the swift British government’s bail out plan of United Kingdom’s largest mortgage provider Bradford & Bingley. According to the European Regulators, the move did not in any way go against the regulations concerning the Government helping troubled corporations.
In its statement, the European Commission said that the methods applied can be given a go ahead as the bailout support in question followed the European Union regulations on state aid for rescuing and streamlining or reviving corporations in trouble.
Seeing that the havoc playing out across the water in the United States, and observing the credit crisis was spreading rapidly across Europe, the British government recently announced that it was assuming ownership of Bradford & Bingley’s £50 billion worth of assets comprising mortgages, loans, and corporate loans and re-mortgages. This, according to the British Prime Minister, Gordon Brown’s statement, is an essential move in helping to alleviate trouble within the financial system.
In this particular rescue case the European Union regulators have to give consent to the British Government before any aid can be granted to corporations. The commission, sensing the urgency of the matter, swiftly came in to give a green light to the British government’s bailout transaction.
In order to make possible the successful sale of the Bradford & Bingley bank including its whole retail branch network, the British government paid out a staggering £18 billion to the Spanish banking giant Santander, the owner of the Abbey and the Alliance and Leicester; Banco Santander is the second largest bank in Europe. Shortly after the deal was confirmed the bank issued a statement saying it will pay £612 million for Bradford & Bingley’s 197 branches and £20 billion worth of deposits.
After the troubled Northern Rock was nationalised in February of this year and the recent subsequent announcement of Halifax Bank of Scotland’s impending acquisition by the Lloyds TSB banking Group to avert its share price falling any further, Bradford & Bingley was the third key United Kingdom based bank to fall foul of the credit crunch since it started just about a year ago. This is a way of stopping the steadily plummeting share price.
In addition, The European Union reiterated that the state financing to facilitate the sale of Bradford & Bingley’s savings and deposit book and branch network signified Government help that could be allowed under the European Union’s regulations.
The supervisory body established that Banco Santander had not acquired any state aid since it had paid the market price for Bradford & Bingley’s ailing retail deposit business. Moreover, the European Union said that British authorities had guaranteed to give them a reorganisation plan for the Bradford & Bingley Bank by the end of March 2009. The firm was, on the whole, slightly more susceptible to the credit crunch because much of the fact that its mortgage book was, and still is, geared towards the buy-to-let and self certification market.
The hastily escalating mortgage rates indicate that investors who secured loans to purchase properties for rental purposes have not been successful in making their mortgages repayments with the income emanating from the rents. In this regard, many of them are defaulting on the loans; it was found that 17 percent of borrowers from the Bradford and Bingley (buy-to-let borrowers) had not had their incomes carefully scrutinized before being offered a mortgage.
Bookmark with: