British government nationalises second bank hit by credit crunchSeptember 29th, 2008 - 7:13 pm ICT by IANS
London, Sep 29 (IANS) The British government Monday said it will nationalise buy-to-let mortgage lender Bradford & Bingley, but uncertainty over who will pay for the bailout surrounded the latest casualty of the global credit crunch.The government said it will take control of Bradford & Bingley’s 42 billion pound mortgages and loans, while its estimated 21 billion pound savings unit and branches are to be bought by a Spanish bank, Santander - reportedly for 600 million pounds.
“Following recent turbulence in global financial markets, Bradford & Bingley has found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution,” said the Treasury (finance ministry).
The nationalisation - a rare instrument of intervention in market-friendly Britain - is the second since the government took over Northern Rock, a bank that too was hit by the credit crunch.
The plan to nationalise Bradford & Bingley was reportedly agreed at a meeting between Prime Minister Gordon Brown and his Chancellor of the Exchequer (finance minister) Alistair Darling Saturday after the bank suffered from a lack of confidence in recent weeks, with shares falling more than 93 percent in the past 12 months.
While it is said to have enough liquidity to tide it well into the next year, analysts said the bank’s problems were mainly the result of its focus on lending money for the buy-to-let property market, which has seen a large rise in bad debts as British house prices have fallen.
The government said that under the nationalisation model it is following, the taxpayer will be protected because any losses would be borne by the wider banking industry under a government compensation scheme.
But the opposition Conservative Party, which is leading ruling Labour by 19 points in opinion polls, came out against nationalisation, saying the cost would ultimately be borne by the taxpayer.
The party’s shadow finance minister George Osborne said instead of nationalising the government should place the bank in a “special resolution regime” under which Britain’s central bank would run the bank down.
The Conservative Party accuses Labour of having failed to save enough during the last decade’s period of economic growth, while Prime Minister Brown has staked his political future on his record as finance minister from 1997 to 2007.
“Under nationalisation, the taxpayer steps in and says, ‘We are going to give you your money back’. I’m not sure that’s fair. I don’t think people on 12,000 pounds or 20,000 pounds a year should see their taxes go up in order to support people who are getting bonuses of one million pounds or two million pounds year,” Osborne said Monday.
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Tags: alistair darling, bad debts, bradford bingley, chancellor of the exchequer, global credit crunch, global financial markets, lack of confidence, mortgages and loans, prime minister gordon brown, rare instrument