No to Bradford and Bingley nationalisation

The events of the last few days are spooky. Parliament remains on holiday. We learn from the BBC Business correspondent that the Bradford and Bingley share price has fallen a lot and they are looking at “solutions”. We hear that the PM has not ruled out nationalisation, and it is the last resort proposal. Then we learn that they will announce Bradford and Bingley’s nationalisation.

We are not told what the problem with B and B is. Many companies experience falling share prices, but that does not mean they have to be nationalised. A bank can carry on trading with little confidence in its shares and a low share price, if people remain happy with it as a deposit taking institution, as people have done with B and B. If B and B needs more share capital it can seek new shareholders or ask exisiting ones to put up some more. If it is short of cash it can ask the Bank of England as lender of last Resort to lend it some, failing other sources of borrowing in the market. It can sell assets or seek a deal with another larger bank or a more cash rich institution. The BBC told us there was no need for any B and B depositor to panic.

Even more curious, we hear this morning from the BBC that the government wants to keep the portfolio of mortgages, the assets, but not the branch network and the deposits from savers, the liabilities. So what form will the sale of the liability side of the bank take? What will the government offer instead of the mortgages to a buyer so they can repay the depositors when they want their money money back? Will this sale take place by open auction? How do taxpayers know they get good value?

And why should the taxpayer have to end up with a £50 billion mortgage portfolio on top of the huge Northern Rock one? Why is government better able to manage this than the private sector? Are there any limits to how much debt the government wants to own? Why do we need another mortgage bank unable to lend anything to anyone at a time when there are too few mortgages? This looks like another very poor decision for British taxpayers, and another bad blow for the mortgage and housing market. Fewer new mortgages means a bigger house price fall, which in turn means more losses on exisirting mortgage books. The taxpayer is in for more bad news.

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25 Comments

  1. Johnny Norfolk
    Posted September 28, 2008 at 9:07 am | Permalink

    Who knows what is going on. You cannot apply any normal logic to Labour. I suppose they will be trying to enact spoilers for the Conservative Party Conference as they did last year. It just frightening what they are doing to our country, its a scortched earth policy I think.

  2. Mike Gill
    Posted September 28, 2008 at 9:42 am | Permalink

    Absurd and crazy as it may seem, for many years I have entertained the thought that Gordon Brown is bent on destruction of this country.

    Is this so absurd, so crazy? We think pityingly that he is a misguided socialist obsessed with redistribution, but Brown cannot have been so stupid as to have failed to comprehend the consequences of his policies. He has consistently misrepresented statistics and outcomes in a way that reeks of calculated cunning. The progress of Government economic policy since 1997 could not have been more skillfully formulated to achieve armageddon. The commentariat rates him as an obsessive micro-manager, so if his is not the brain behind it all, then whose?

    Currently he seems embarked on a scorched earth policy of ultimate destruction, and I contend that this is deliberate. The response to each situation is determined on the basis of maximum damage consistent with political plausibility.

    I fear for my children, and for all those starting out on their carreer paths, who now face the certainty of toiling unremittingly to bear the consequences of this evil man's exploits

  3. Mervyn Howdle
    Posted September 28, 2008 at 10:03 am | Permalink

    This is a typical response from a conservative. He raises a number of questions without saying what specifically he would do to resolve the short term problems (or even the medium/long term issues). Just be honest and face up to the fact that there is no real alternative to what the government is now proposing for B&B.

    Reply I have set out several other ways of handling it to protct depositors and lose taxpayers less.

  4. Kit
    Posted September 28, 2008 at 10:20 am | Permalink

    I just want to know why? Everyone was expecting B&B to fail so its failure will not cause any systematic problems. So why throw tax payer money at it?

  5. mikestallard
    Posted September 28, 2008 at 10:22 am | Permalink

    The whole problem with Gordon Brown, it seems, is that he is lonely (Charles Moore in this week's Spectator). Therefore he likes to work alone, often, it seems, without taking any advice at all. That, of course, leads to monumental mistakes.
    If this were properly discussed, say, in Parliament, then we would not be facing another disaster.
    You talk as if the taxpayer's pockets were infinite.
    They are not – especially in this land at the moment. We are probably (as you showed) well over a trillion pounds in debt altogether now. If that is true, then, the country really is facing bankruptcy in the near future – as, I believe – the USA could be as well.

  6. Donald Mills
    Posted September 28, 2008 at 10:23 am | Permalink

    Thank you for your blog.

    I am totally reliant on the income from building society investment accounts to fund my retirement.
    If these fail, then I will go the way of the banks, go broke, and ask for a government handout in the form of benefits to sustain myself and my wife.We are both in our seventies
    Its not just the banks that will be asking for handouts but ordinary citizens who have put money away for retirement to be independent and are now seeing their savings crash.
    Benefits in the form of Government handouts ? ..We will all be in the queue !
    The working taxpayers will be picking up the bill.

  7. Posted September 28, 2008 at 10:38 am | Permalink

    If receivers were to have been appointed they would look to generate cash fast and one way to do this would have been to offer a substantial discount the outstanding mortgage holders. This in turn would have offered the prospect of better gearing for those who had borrowed from B & B, making them a more attractive proposition, which would enable the majority to obtain new finance elsewhere. The more reckless would not succeed and that would mean repossessions, which, given the present crisis would be happening sometime in any case. There would be consequential losses of course by depositors and those banks that were into B & B but these would at least be greatly mitigated. That way those who had taken the risk would be rightly bearing the consequences and not taxpayers in general, who were never party to it.

  8. Posted September 28, 2008 at 2:37 pm | Permalink

    The problem with keeping it going would be the probability of a run, as happened with Northern Rock. The only way to stop that would be for the government to guarantee all deposits which is not better than a takeover. I trust, however, that the nationalisation will be done on a basis that the shares are barely worth a nominal amount, which is what the market seems to think. If so the real possibility exists that the taxpayer might come out of it without a loss. This is better than what is happening in the USA where only the "toxic" assets end up in government hands.

  9. david
    Posted September 28, 2008 at 5:31 pm | Permalink

    Surely this is the result of de-mutualisation, a disasterous policy much encouraged by the last Conservative government.

    Once again Socialism led by by, 'Red George W Bush' has rushed to the rescue of Capitalism.

    • Stephen Southworth
      Posted September 29, 2008 at 1:40 pm | Permalink

      David, I think you'll find that the de-mutualisation policy was supported by Mr Gordon Brown when in opposition.

  10. K Walsh
    Posted September 28, 2008 at 10:53 pm | Permalink

    I was silly enough not to sell the 250 shares each my husband and I received from the B & B. I thought we should keep them as part of a nest egg, although shares fluctuate, you expect them to recover at some stage. Obviously not, if B & B is nationalised many small shareholders will lose their allocation, these are the people who can ill afford to. At least HBOS shareholders will be issued with Lloyds shares.

    • Donald Mills
      Posted September 29, 2008 at 5:40 pm | Permalink

      So poor Mr and Mrs save for it a rainy day have now lost what little they have and it follows the biblical adage about those who have little, that also will be taken away.
      So this seems to be a truth against which the masses cannot protect themselves. Well.I`m one of them and I can tell you it hurts like hell.!
      If the Conservative party had one ounce of decency which it seems they do not, they would be calling for those who have created this financial mess to foot the bill.
      Instead of which, silence ! , Blame Brown, Blame the Labour party, blame the workers, blame the savers but never, ever, blame the financiers.
      Maybe Australia and now Austria going right wing has the right idea, who knows?

  11. Simon Denis
    Posted September 29, 2008 at 1:38 am | Permalink

    It seems to me that the left is back in charge of Labour. In many areas – schooling, immigration, health – it had never gone away, but Blair did manage to clear a small area of SDP-style moderation around the issues of banking and business. This is now being overwhelmed and Brown is using the current spate of jitters as the excuse to move into those old "commanding heights". Hence the apparently unnecessary move to take control of B and B.

  12. Tears for Tear 1
    Posted September 29, 2008 at 2:14 am | Permalink

    News that Bank Santander is to buy the retail deposit base and the B and B branches seems to demonstrate just how poorly run this government is.
    £20bn of retail deposits is GOLD DUST in this crisis.

    Why is this government allowing them to go to a Spanish bank?

    The HBOS rescue could still very easily fail, because Lloyds + HBOS are retail deposit short.

    The B&B retail deposit base should have been held in reserve to rescue the HBOS bail-out if needed.

    Instead, this incompetent Government, has just played its best card to get the headline "B and B has been sold to Santander".

    The media should be reporting this, instead due to economic illiteracy and a left wing bias they parrot the government line.

    This incompetence could easily tip England into the abyss.

  13. Manfarang
    Posted September 29, 2008 at 2:29 am | Permalink

    And how would a takeover by the Bank of England be any better?
    Reply: Not takeover – that gives you the liabilities – lending against good security

    • Manfarang
      Posted September 29, 2008 at 11:09 am | Permalink

      Not a lot of good security in the wonky banks!

  14. Stephen Jenner
    Posted September 29, 2008 at 9:48 am | Permalink

    As usual, John Redwood is right. Personally I am convinced that Mr. Redwood and his likeminded Conservatives are in the wrong conservative party. Surely after all these years (post Margaret) of being ritually laughed at by the Conservative party leadership it is time to join UKIP and help make it a serious party of opposition.

    I have an idea, that might help to create a better environment for aspiring homeowners. We could set up "banks" where the only people able to receive loans would need to be shareholders too. They would need to be mutually based "societies", where risk was jointly held along with benefit.

    Perhaps we could call them building societies… or something.

  15. mikestallard
    Posted September 29, 2008 at 10:54 am | Permalink

    I have just read the article by the Archbishop of Canterbury in the Spectator. His position is this: "the market" is an idol. It does not exist in itself, people make it and then breathe life into it. then they worship it, as a God.
    What "the market" consists of is people trusting other people and lending money to other people under certain rules.
    If you lend money to people who are crooks, who are broke, who aren't going to repay because they can't, or who are going to drink the money etc, then you lose your money. As soon as it ceases to be based on real personal trust, it is bound to fail.
    If you say that the debt which you have created (by the loan, which may, or may not, be repaid) is actually real money, then you are misleading people and therefore cheating them.
    This is not the fault of the market (which, remember does not exist). It is the fault of the cheats and of the people who mislead and pretend.

    Add in a healthy dose of Liberal Leftie guilt about race and poverty and "working class aspirations" and – bingo! – you have a crisis, because people lend money to people who have neither the ability nor the wish to repay. That is why the whole immoral system comes crashing down like the idol which it is.

    (Last paragraph is mine, not His).

  16. K Walsh
    Posted September 29, 2008 at 1:25 pm | Permalink

    The inference is that any savings people had with B & B have been saved. Not if those savings are in the form of shares!

  17. TimP
    Posted September 29, 2008 at 2:31 pm | Permalink

    Thanks once again Mr Redwood for helping to expose the lies and deceits of this obnoxious administration.

    In reply to "david" 28 Sept 4:31pm, this has nothing to do with demutualisation per se. Ceasing to be a mutual did not give the management of B&B carte blanche to pursue a fundamentally flawed business model.

    It is very difficult to avoid "Mike Gill's" conclusion above that the dying days of the Brown administration is solely concerned with a scorched earth policy designed primarily to buy Brown a day or two of survival at a time, while ensuring that the incoming administration will have both hands tied behind its back for years to come (sorry about the mixed meaphors!). It does, sadly, seem that this approach can be effective in the UK: just look at how many people still bleat about the "damage" caused by the Conservative administration in purging this country of the socialist mess of the 1970's!

    This creeping "nationalisation" is fully in accord with the present administration's "command and control" approach to every aspect of our lives.

  18. Mark
    Posted September 29, 2008 at 6:04 pm | Permalink

    Businesses that make bad choices (and unfortunately the people that invest in those businesses) must suffer the consequences of their bad choices. I am not a shareholder in B&B and I can see no reason at all why my looted tax money should prop them up. No more socialist nonsense please! Pretty please!

  19. Donald Mills
    Posted September 29, 2008 at 9:40 pm | Permalink

    It was once stated that the duty of directors was to the Shareholders. This no longer seems to be the case. It seems increasingly that the duty of the directors is to themselves and themselves alone. In saying the shareholders are to blame for investing in banks that then go bust, it is surely the duty of the directors in such unheard of cases to throw themselves on their swords and not give themselves and their friends fat bonuses before retiring to sunnier climes.
    This is a disgraceful situation bought on by greed, greed and yet more greed. To say Gordon Brown is responsible for the collapse of the banking industry because he borrowed excess money is as absurd as it is devious. It was not Brown borrowing money that caused this problem it was an unholy alliance of Solicitors, Estate agents and banks selling worthless property to people who the agents knew could never afford the repayments that bought on this situation. They even had the nerve to rewrite the work JUNK as Sub-Prime. B&B was one such typical example and full of junk. The shareholders however were not to know this. Check out the B&B flow chart for dealings.. Even Alexander would never have unpicked that unholy knot.

    If one also wanted to call those people who took out such mortgages idiots or irresponsible then the system was once designed to be almost idiot proof. However, the bankers greed has overridden the idiot proofing system, and bankers prudence vanished on the altar of greed and we are all now just beginning to reap the results.

    • mikestallard
      Posted September 30, 2008 at 9:00 am | Permalink

      There is one thing you ought to add to all this.
      Why did they suddenly start lending lots of money to people whom they knew would never repay them?
      The big question is this: how much did fashionable ideas about racism, the vulnerable, the hardworking poor etc etc colour their decision both here and in USA?
      This has not been answered yet.
      Maybe it is time to examine our own shibboleths?

  20. Posted September 30, 2008 at 5:07 pm | Permalink

    Considering B&B primarily deal with the Buy to Let investors which are strictly in a mess as a result of their own actions.
    And Buy to Let repossession rates have TRIPLED in the last 12 months, and ALL deposits are backed by guarantee to £35,000, and ALL residential mortgage holders have NOT ONE THING TO WORRY ABOUT regardless who owns their DEBT.
    Then I think Gordon Blown is either seeking to sucker the nation, or he doesn't know what he's talking about.

    When it comes to taxpayers and nationalization as the only option he can see, I think its way past time he left.
    By imposing this unncessary burden on the taxpayers, he is making them take on the risk of keeping this outfit open simply to avoid branch closures. The branches are no doubt full of people, convinced that Labour will save them yet he's done an 18 month deal on that which happens just to be the time he has left in office on the outside.

    Meanwhilew, many Americans are back to living in wigwams again and despite thousands of ordinary folk have been repossessed from their homes, the US and the UK want them to pay for the recovery packages of the very people who made them homeless !!! Staggeringly unbelievable but there it is !!!

    So how have others handled this downward spiral in finance ?
    Russian premier Vladimir Putin has engaged VEB.
    A business loan DIRECT to the business ( not to the bank ), and thereby securing the interests of workers and taxpayers, and its industries which otherwise banks and bailout boys would be picking off by forcing foreclosures on business loans which would otherwise land a certain amount of prizes for foreign bankers when the market returns.

    Who's looking after the interests of workers, jobs, assets, business and the economy better. Is it Putin or Brown ?

  21. Posted October 17, 2008 at 9:40 am | Permalink

    Permettez-moi de comprendre cela, je tiens à vous remercier. Je vais toujours revenir ici

3 Trackbacks

  1. […] John Redwood is also firmly against the idea of further nationalisation of the banks and poses so many questions about the wisdom of the decision that he will likely keep Alistair Darling and his team busy for the next fortnight. How come the government plan to announce the takeover before Monday morning and while Parliament is not sitting? […]

  2. By Curly’s Corner Shop on September 28, 2008 at 2:28 pm

    […] John Redwood is also firmly against the idea of further nationalisation of the banks and poses so many questions about the wisdom of the decision that he will likely keep Alistair Darling and his team busy for the next fortnight. How come the government plan to announce the takeover before Monday morning and while Parliament is not sitting? […]

  3. […] Redwood makes a knock-down case against the seizure of Bradford and Bingley on his blog. I mention this because he is one of the few observers who saw our present discontents coming. His […]

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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