Bradford & Bingley & Broken?

Lets face it B&B isn’t the first bank to face difficulties and won’t be the last. The good news is that TPG Capital have bought in and they aren’t likely to be throwing their money away?

Cliff,

I know you have been hawkish about house prices for some time and no doubt some prices are heading south for a while, but I don't understand your hostility to Buy to Let. Why should BTL be particularly vulnerable at the moment? People have to live somewhere and there are reports of rents rising significantly now that FTBs are struggling to get mortgages.

As an ex Buy-to-Let er (I didn't enjoy it, though I did make money) I really can't see the problem. As long as you have done the maths and can easily cover to mortgage it still seems like a solid and traditional investment.

If you didn't get the sums right and borrowed too much, the problem isn't BTL or even Self Certification mortgages. The problem is stupidity!

Without having done anyresearch at all, my feeling is that B&B's troubles have a great deal to do with US sub-prime and the cost/difficulty of refinancing and little to do with the 'Dangers' of the BTL market per se.

I agree with all that Coypu has written.

The only bit of Buy To Let that's safe is for property that is rented out to councils. These tend to be professional investors and this kind of investment has stayed strong for 30+ years.

The rest is rented out privately through letting agents. These tend to be newer owners that have bought in the past 1 to 10 years. Those that bought recently are on shaky ground because those that bought earlier will always be able to price rents lower because they bought at a lower price.

This is the shakier segment. Any institution that lends in this area will have found that that their new business has dried up just at the time that their old business is suddenly very risky. Investors no longer have confidence in institutions that only do this.

AS A NOVICE BUY TO LET INVESTOR I STILL FEEL THERE ARE DEALS OUT THERE,YES RATES ARE HIGHER AND LTV IS LOWER BUT IF YOU DO THE MATHS PUT A BIT MORE CASH IN THERE ARE STILL TENANTS OUT THERE.THE MEDIA ALWAYS OVER EGG THE CAKE THEY LOVE DOOM AND GLOOM GREED WILL ALWAYS CATCH OUT SOME PEOPLE,BUT I AM STILL INVESTING JUST TAKING A BIT MORE TIME TO DO THE RESEARCH,IN FACT GOING TO LOOK AT A GREAT DEAL THIS THURSDAY IF ITS STILL AVAILABLE AND I WILL KEEP YOU POSTED

I see the doom merchants are out in force again - talk about a media fuelled recession. If it wasn't for 'sensationalist' reporting I'm sure there would never have been a run on Northern Rock but hey, lets not let the facts get in the way of a good story.

TPG Capital is paying 55p a share for almost a quarter of Bradford & Bingley, with the replacement rights issue at the same price. Therefore, there is no reason why existing shareholders should value their shares at much above this level. What's more, the dividend will definitely be cut later in the year.

In short, if I were a shareholder in B&B, I would head for the exit by selling my shares.

Good journalism except for the selling advice. If somebody is prepared to take almost a quarter of the company at 55 p a share, and you do not think the company will go bust, surely the Foolish thing to do is continue to hold your shares. At 55 p a share you have already suffered a very considerable paper loss. Why crystalise it by panic selling?

Yours

Prof103

gortnomore-your argument is true, but a little simplistic. I doubt there has ever been a time when money in savings or deposit couldn't outstrip rental return. In my area, a cash bought 150K BTL 3 bed house would return about 8500k pa in rent. 150k @ 6% in the bank would return 9K. If the BTL is a Flat with a punitive service charge, deposits look even more attractive. So why does anybody bother with BTL? The reason is surely for cash-flow month on month? Yes, Return on Capital and investment considerations are important for any business, but a little of this has to be sacrificed to ensure cash-flow which is equally important. In short your average BTL investor, unlike a business, can't afford to tie up all their limited capital in long-term investments which only pay out periodically. It sounds to me as if you are viewing it from a speculators short-term view-although Im not saying you are one! As a long-term BTL investor myself, nothing would please me more than to see all these 'Johnny-come-lately' wide boys exit the market. And I confess, I lose money on BTL because for reasons too complicated to go into here, I didn't put enough down. And because of this, yes you're right, I should be looking to sell. But with 100% equity, I'd always choose BTL over Deposits-simply because of the cash sum that goes into my account every month.

I do laugh at the way some people seem to take Cliff's comments personally! Almost always those who are BTL-ers.

I don't think Cliff is slating Buy To Let in general - let's face it, BTL has been around for quite literally centuries.

He's talking about the bubble that has arisen in the market recently.

I agree that it's a good LONG-TERM investment, but ten years is only one business cycle in the housing market, this isn't long-term.

I also laugh at the way people say 'the media's talking down the market'.

The media has also talked UP the market with headlines of 'House Price Rises Of x%' headlines - funnily enough you weren't complaining then, eh?

Average House Price to Average Earnings ratio since 1952 has been broadly around 3.5-4x (source: Nationwide Building Society)

It's only moved near to 5x twice (1973 and 1991). Both times it corrected itself back down within a year or two.

We are now around 5.5-6x - so whatever people say about immigration, small island and lack of new building etc. etc. - I don't think it's different this time.

I therefore think the market will correct itself. I wouldn't put everything I have on it, because nothing is ever 100% certain, but the fact that this exhibits all the centuries-old signs of a bubble (headlines about the incredible market, then articles saying 'is this a bubble') pretty much seals the deal for me.

The responses to the article seem to have turned into BTL arguments. The article is predominantly about B&B's financial well-being, or lack of.
B&B have let the bad news trickle out, hence the distrust. They're now faced with the onus of having to purchase a further $4.1 Billion of BTL and sub-prime mortgages from GMAC
http://www.bloomberg.com/apps/news?pid=20601102&sid=aPcrwtFCxvFs&refer=uk
and already have a shortfall with 5% of mortgagees three months behind on repayments with earlier purchases from GMAC
The UK's BTL overall has only a 1% arrears level, showing that BTL is not, in itself, unhealthy, but GMAC and hence B&B appear to be very unhealthy.
Add to this the fact that B&B's position is due to a 'mere' £409 million of GMAC loans, which it now has to increase colossally to over £2 Billion by the end of next year and it's easy to see why Standard & Poors stated:
"Not only has the deterioration been extremely rapid in recent weeks, but also B&B's own management information may have been inadequate."
I think we could agree with that:-)

Oh and, just to bring this thread back on track, B&B were, of course, one of the major lenders which threw preferential mortgage rates in the direction of BTLers, fuelling the bubble. Doesn't seem like such a smart plan after all now that the can't-do-sums amateur landlords can't pay you back, eh, B&B?

Can one of the BTLers explain what will happen to their business model when house prices half and hence rents will half and therfore income will half and not cover the mortgage payments.
Anything associated with BTL seems to have gone bust or close to the rocks, purely an observation before I get flamed.
Surely the same value of BTL property earning interest somewhere is better than seeing thousands slide off the value of the BTL property each month. Again, an observation.
Rents are being 'talked-up' like the propety bubble was.
This is a knee-jerk reaction. There are more properties for rent now so there is an oversupply. Also, people are getting that hard-up they cannot afford to buy or rent. And like I said, rents will follow house prices down. So any rent rise has got to be very short term, and rent drop will be long term

hi ,im not a trained business man or financial advisor so i might be talking rubbish .anyone out there that can explain to me where the 108,000,000 they made profit went surely it wasnt all paid to shareholders.b&b probably made profit in all quarters last year so why does making a loss this quarter nearly cripple them,appreciate all enlightning info ,ta brain dead me.

Smerfdoobrie, Texas Pacific Group is a private equity fund. Private equity funds typically invest on behalf of pension funds and other institutional investors. They generally put in part cash and then get a loan to cover the remaining amount of investment. It is not clear at the moment how much debt is behind the investment in B&B, or who might have provided it.

Weell said cloud watcher47
Chill out people! B&B have been around for over a hundred years and survived all recessions / depressions so far
yes Im another ( branch) staff member and proud of it!
A suggestion to all you foolsthat may not be customers at the moment- why not try investing in some of our excellent products and to all share holders moaning about the drop in share price ( Usually people who got free shares are shouting loudest!)why not buy shares whilst they are cheap and support the company who has been paying you ever increasing dividends over the last few years.Dont forget the share price was over £4.00 only a few months ago. Positive people power will help us all to make a profit!

I am not a shareholder or customer of B&B but feel that perhaps there is a little bit of scaremongering going on. If I were in a position to buy shares now I probably would. So good luck to all who take the chance and are prepared to wait.

One other thing, Cliff mentioned Self Certification Mortgages and loans (alias liar loans). How dare you say such a thing. My husband is self employed and has to "self cert" because he refuses to pay the exorbitant fees of accountants. He pays his tax every year, fills in his own tax return with the help of the local tax office and NEVER lies about what he earns when applying for finance. Unfortunately there are a lot of people in the finance world who think like Cliff and assume all self certification applicants are liars. I think you are all being too narrow minded and quite frankly abusive. Just one more thing the proof of earnings my husband does have ie tax bill etc isn't enough for the finance world so he has to self certify thereby only being offered the less favourable rates!

I think the advice to sell the shares is poor.

Only a week ago i heard Anthony Bolton afvise investors to take profits on commodities and start to invest in a range of financials to spread the risk.

If you hold B & B as part of a portfolio of finacials i would advise holding and taking up rights.

I can only say 2 things one the media loves to play games and divert peoples mind don't forget they have the greatest power...so just stay where you are if we all start moving away we will make things worse for others if we all stay together and support nothing is going to happen. Second business is about profit and losses stop listening to the media and follow your instincts Im staying with B&B and i hope to see them through many years ahead.