UK set to nationalise B&B bank

The Treasury would have preferred a private sector rescue for Britain’s ninth biggest mortgage provider but rivals appear unwilling to come in as a “white knight” amid a global credit crisis and weakening British housing market.

The BBC said B&B will be nationalised and its mortgage book merged with Northern Rock, the lender taken under state ownership in February.

The government this month brokered the takeover of HBOS, Britain’s biggest home lender, by rival Lloyds TSB and is stepping in again.

“We are very clear that depositors and ordinary savers must be properly protected and they will be as part of the arrangements we will set out,” Treasury minister Yvette Cooper told the BBC.

Cooper said negotiations were still under way, but the government was aiming to support the financial stability of the banking system.

B&B is the latest bank to be hit by a global financial crisis, which was sparked by losses on poor quality US home loans and has claimed a number of high-profile victims in the US and Europe.

The crisis and Britain’s weakening economy have heaped pressure on British prime minister Gordon Brown, whose party lags the opposition Conservatives in opinion polls and whose leadership has been questioned by some in his own party.

B&B’s £24 billion ($44 billion) of savings and its 200 branches could be sold to a rival or rivals. Spain’s Santander, which owns Abbey and is in the process of buying Alliance & Leicester, was in talks about possibly taking over deposits and branches, an industry source said.

But rivals are reluctant to take ownership of B&B’s book of £41 billion of residential loans — representing 3.4 per cent of UK mortgages — as many of them are higher risk buy-to-let and self-certified loans and the British housing market is weakening, raising the prospect of rising bad debts.

The government could nationalise B&B using legislation put through to deal with the Northern Rock crisis.

A spokesman for B&B said: “We can confirm we are working with regulatory authorities to bring clarity to the bank’s future.” He said news would be announced before Monday’s stock market opening and customers” savings were safe.

B&B shares tumbled to a record low on Friday and the cost of insuring its debt jumped, prompting regulators to step up efforts to find potential white knights for the bank.

£ 24 billionThe savings of Britain’s 9th largest mortgage provider, Bradford & Bingley

£ 41 billionB&B’s residential loans, representing 3.4 per cent of UK mortages

Who may cash in?

•The BBC said B&B will be nationalised and its mortgage book merged with Northern Rock, which was taken under state-ownership in February

•Sources said Spain’s Santander was in talks about taking over B&B’s deposits and branches