Bradford and Bingley 'to be nationalised' as rescue bid stalls

THE troubled Bradford & Bingley (B&B) bank is set to be nationalised with an official announcement expected later today, it was reported last night.

Officials from the Treasury and the Financial Services Authority (FSA) were in talks overnight to thrash out final details of the plan that will end the banks cherished independence.

The BBC reported that once the deal has been agreed, the Treasury will almost instantaneously sell B&B to a bank, or a number of banks.

Depositors and savers' money should be safe but B&B's shareholders and holders of its debt may lose out, the report said.

B&B's £50bn of loans – including £41bn of residential mortgages – will not be sold and will be nationalised on a long term basis. It is possible that the mortgages will be given to the nationalised Northern Rock to manage.

The report added that the Treasury and the FSA decided they had to act to nationalise B&B because the bank was perilously close to seeing a demand from investors for the return of billions of pounds – which it would have been unable to find.

One source involved in the negotiations said: "There were several options being discussed. The banks were talking. But what appears to have happened is that there is no way that they were going to get a private sale by the time the markets opened on Monday morning, but there was enough interest to keep talking."

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

However, there were no significant queues, except for at four branches before doors opened, because hundreds of B&B staff gave up their day off to man the tills.

B&B's share price has plummeted in recent weeks and it has announced plans to cut 370 jobs due to the downturn in the mortgage market. The nationalisation underlines the scale of the global banking crisis.

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

The Treasury and FSA will then 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.

There was no immediate comment from the Treasury last night, other than: "The discussions are still going on. A further statement is expected before markets open on Monday."

The nationalisation and break up of B&B is a significant moment in the history of British banking as it will mean that every building society that floated on the stock market in the wave of demutualisations in the past two decades will either have collapsed or been sold to a conventional bank.

B&B, the eighth largest mortgage lender, now becomes the latest banking institution to become a victim of the global financial crisis and the deteriorating state of the housing market.

Its shares fell 6% to an all-time low of 20p as it became clear that no rival bank was prepared to mount a rescue bid.

Since the start of the year, B&B shares have fallen 90%.

However, the British Banking Association reassured the 2.5 million customers who have £22bn deposited with B&B. "Customers have no need to worry about any deposits in any British bank," a spokesman said. "The Financial Services Compensation Scheme covers all savings up to £35,000, which covers 96% of all banking customers."

Liberal Democrat shadow chancellor Vince Cable said: "Bradford & Bingley's problems are a predictable consequence of the collapsing housing bubble built on a toxic mix of buy-to-let speculation and self-certified mortgages.

"The best option would be for Bradford & Bingley to be acquired by another private bank, but if the worst comes to the worst and the takeover by Northern Rock goes ahead, then the Government must learn from its previous mistakes and avoid the months of dithering that caused serious damage last time."

Brown, who was in Washington for a meeting with US President George Bush, said the best way of dealing with the British aspect of the global financial crisis was to increase liquidity.

"The American plan is designed for a large number of banks and institutions across America," Brown said. "We have a smaller banking system. We have put cash into the system. That, in Britain, is the better way of dealing with it."

• A wealthy financier said to be overwhelmed by the current global banking crisis died after throwing himself in front of a morning commuter train, it emerged last night.

Married father-of-one Kirk Stephenson, 47, chief operating officer at private equity firm Olivant, died just after 9am on Thursday morning near Taplow station in Buckinghamshire. A source said: "I imagine he will probably have lost a lot of cash recently as a result of the credit crunch. It appears the pressure became too much to bear."