Santander's Market Dominance

Santander, the Spanish banking group that owns Abbey, Alliance & Leicester and Bradford & Bingley, has announced a 58% rise in Sterling profits for the first 9 months of this year to £1.2BN.

Abbey's gross lending of £19BN represented 20.5% of the UK market, although it is 37% less than last year.

Santander is the eurozone's largest bank by market capitalisation.

However, Bradford & Bingley is going to split its good and bad assets (its balance sheet being £50BN), and sell the good assets to private buyers, in order to pay off its £18.4BN loan early.

The question is, what exactly is a "good" asset and what is a "bad" asset?

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Famous Names Scrapped

Abbey, Alliance & Leicester (A&L) and Bradford & Bingley are to be scrapped; or at least their names are to be consigned to the dustbin of history.

Santander, the Spanish banking group that owns all three brands, has announced that it will re brand them under the "flame-logo" and Santander name by the end of 2010.

Given that the above names currently exist and function side by side in many highstreets, it is fair to assume that once the re branding has occurred the next step will be staff cuts and office closures.

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Time Running Out For Bradford and Bingley

Bradford and Bingley have announced that their mortgage processing centre in Borehamwood, Hertfordshire, is to be closed and the 300 staff made redundant.

It seems that it does not have a future as an independent business, its credit rating has now been cut to one notch above "junk".

The Financial Services Authority is trying to find a buyer for the bank, in order to avoid another Northern Rock fiasco.

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Cash Call Fails

Bradford & Bingley's (B&B) cash call has flopped in the eyes of its shareholders, with only 27.8% of shareholders taking up its £400M rights issue leaving the remainder in the hands of its underwriters, Citigroup and UBS.

B&B's new CEO, Richard Pym, has his work cut out to try to restore confidence in the bank.

That being said, Mr Pym can take some small comfort in the fact that the take up of the B&B issue has significantly exceeded the take up of the HBOS rights issue. Only 8.29% signed up to that issue which closed in July.

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Bradford & Bingley - The Plaything of Speculators

In echoes of Marconi and Northern Rock, Bradford & Bingley appears to have become the plaything of speculators as it desperately searches for a new CEO and for a white knight to buy it out.

B&B shares jumped more than 25% this morning, 9¼p to 43¼p, on hopes that it will be bought out.

Pundits believe that it is now likely that, barring further disasters, there will be a wind down or buy out.

The pundits fail to recognise the havoc that the speculators will wreak in the short term.

As a guide to the future, look at what happened to the share price of Marconi and Northern Rock.

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Bradford and Bingley Woes

Bradford & Bingley (B&B) has plunged 15% to a new low of 52p this morning, after the US buyout firm TPG walked away from leading its restructured rights issue after Moody's downgraded B&B's credit rating for a second time last night.

This less than welcome news follows B&B's rejection of a proposal of 72p per share from Resolution two weeks ago.

The question that shareholders will be asking themselves is why did the board reject a 72p offer two weeks ago.

Could it be possible that the board of B&B know that the due diligence that Resolution would have carried out, would have found something that would have caused them to walk away as well?

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There's Something Wrong With Our Bloody Banks

Admiral Beatty remarked ruefully at the Battle of Jutland, as he watched 33% of his fleet blow up:

"There's something wrong with our bloody ships"

Today, the same can be said of our banks.

The Northern Rock debacle of 2007 was but a precursor to serious problems ahead for the banking industry in Britain that are manifesting themselves in 2008.

Leading the pack is Bradford & Bigley, whose share price has all but collapsed in the wake of terrible results, the resignation of the CEO and a botched rights issue.

The Times reports that the pricing of the original rights issue was based on March's accounts, for reasons unclear the bank chose not to (or was not able to) use the April figures in the original calculation. Once those were in the directors' hands the reality of the bank's parlous position hit home. So serious was it that the underwriters pointed a gun to the board, and threatened to dump the shares if they were saddled with them. Hence the board was forced to go cap in hand to TPG, and offer up 23% of the company.

Suffice to say the shareholders of B&B are "pissed off", to out it mildly.

To add the the woes of the banking industry, the Office of Fair Trading conducted a series of dawn raids at offices of Barclays and Royal Bank of Scotland (RBS) yesterday, as part of an investigation into price-fixing on loans to lawyers and accountancy firms.

The investigation and raids followed a voluntary approach to the OFT by Barclays, amid concerns that staff in its professional services banking group "had been approached from outside ... in an inappropriate manner".

There's something wrong with our bloody banks!

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Bradford and Bingley Collapses

US private equity firm Texas Pacific Group has agreed to take a 23% stake in Bradford & Bingley (B&B).

All shares will be issued at 55p, down from an initially planned 82p underwriting price.

The bank also warned on deteriorating economic conditions, with a decline in net interest margin and increasing arrears. Underlying profits for the first four months halved to 56 million pounds, it said.

B&B CEO, Steven Crawshaw, stepped down this weekend, citing cardiovascular problems.

Shares in B&B plummeted by almost 30% this morning at one point, forcing the FSA to briefly suspend trading as it announced the impact that bad debt has had on the business.

They are currently trading at 67p (down 23% on last week's closing).

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Northern Rock

Bloomberg notes the following:

"The cost of overnight borrowing in pounds rose the most since June as the bailout of U.K. lender Northern Rock Plc stoked concern other home-loan providers will be forced to seek emergency funding.

The overnight rate banks charge to lend pounds soared 60 basis points to 6.47 percent today, the highest in more than a month, according to the British Bankers' Association. The three- month rate fell 7 basis points to 6.75 percent, the BBA said."

Northern Rock's share price is currently down 34% on the day.

The time has come for the Bank of England to:

1 Lower interest rates

2 Knock some heads together in the City, and ensure that the self imposed moratorium by banks on interbank lending is lifted

Should the Bank of England fail to loosen interbank liquidity, other banks will start to wobble. Bloomberg notes that Bradford & Bingley Plc and Alliance & Leicester Plc also rely more on financial markets than customer deposits to fund mortgages.

It is time for the Bank of England to get off the fence.

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