The fall and fall of Bradford and Bingley

The fall of the UK buy to let marketThe last few days have seen some major changes in the structure of the UK financial sector with the likes of HBOS succumbing to the charms (or funding) of Lloyds Bank and finally Bradford and Bingley being put out of its misery via a government bailout and acquisition of the branch network by Spanish giant Santander – the owner of Alliance and Leicester and Abbey.  But why has Bradford and Bingley fallen so quickly and is there a future for the group?

To understand exactly what has happened and irony of the fact it was the Bradford and Bingley’s members who pushed for the demutualisation of the Bradford and Bingley Building Society you need to look back to 1964 when the Bradford and Bingley Building Society first came to the fore. The Bradford and Bingley as we used to know it before its demise was actually made up of the Bradford Equitable Building Society and the Bingley Permanent Building Society which were both established way back in 1851.

In affect the merger of the two societies built a very strong, profitable and growing business which for many years was one of the leaders in the sector.  Then, back in 2000, the group was the subject of an attack by so called ‘carpet baggers’ in a move to push the society towards demutualisation and the release of money to members.  The ‘greed is good’ element of society saw everyone else making money and wanted a slice of the action themselves.  However, in light of recent events the ironic thing was that the management of the Bradford and Bingley at the time DID NOT want to convert to a bank and fought tooth and nail to retain its Building Society status – but to no avail.

New era

The conversion to bank status opened up a new era for the Bradford and Bingley, allowing the group to take on more debt, deal in the money markets and generally mix in the circles which the clearing banks had ruled for many years.  Times were very good in the beginning, business was up and the group was attracting the attention of its peers, envious of its buy-to-let operations which were leading the sector.  The property market was booming, the group had more money than it knew what to do with but was under severe pressure from shareholders to expand (taking larger and larger risks) otherwise open itself up to a takeover.  So what went wrong?

In simple terms the group was over extended from day one, financing the vast majority of mortgages using funds from the money markets, in affect putting the future success of the group in the hands of the money markets.  While it is easy to look back now and suggest that the strategy was all wrong, that they were too reliant upon money market finance, nobody could have seen the recent collapse in the money markets, something which we have seen on a lesser scale before – but never as long lasting or as widespread.

However, finance was just part of the problem because as the group continued to build up its specialist buy to let mortgage business the property markets were starting to stall, bearish comments were creeping into the press and there were signs of slackening demand.  But nobody could have seen the credit crunch coming, nobody could have guessed the all consuming power it would carry but it was on the way.

While the Bradford and Bingley was having to cope with major financial constraints, a collapsing buy to let market it had also agreed a deal with a subsidiary of General Motors (GM) which saw the group agree to acquire a multi billion dollar loan book which at the time looked very safe.  However, once the credit crunch hit home the default numbers on the GM book started to rise, Bradford and Bingley was struggling on a number of fronts and the clock was ticking.

As the problems began to mount it was apparent that the group was in major need of a cash injection, something which led to a very messy but ultimately fruitful £400 million fund raising exercise just a few weeks ago.  Joint partners and potential suitors came and went, the shares drifted lower and lower until finally the group turned to the Bank of England for assistance citing liquidity issues and the fact the group was affectively insolvent.

The 29th September 2008 will go down in history as the day when the greed is good brigade finally got their comeuppance, when the move from a building society to a bank was found to be the main crux of the problem – something which the management at the time had tried to resist to howls of disapproval from the ‘carpet baggers’.

The government took on the £50 billion loan book although the branch network and retail business was sold on to Spanish giant Santander for a reported £612 million.  The group which has it roots back in the 1800s and had become a beacon of the buy to let market was no more, Bradford and Bingley was dead and buried.


The fall and fall of Bradford and Bingley is a reminder of the greed is good period which has dominated the last decade on the UK financial markets.  A group which was for many years run very conservatively was suddenly thrust into pastures new with funding and debt literally falling into the company’s lap.

The cruel irony is not only the fact the original board did not want to change status to a bank but the fact that the group has over the last 8 years rejected a number of multi billion pound takeover approaches and been encouraged to take more and more risks by investors and adviser.

Shareholders may feel aggrieved that they are left with literally nothing but for many the writing was on the wall some time ago as the ‘old’ Bradford and Bingley moved into the new age of increased risks for ever reducing margins – something which will hopefully make some investors sit up and think before they decide to follow the herd in the future.


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