B&B could see return to profit later this year

NATIONALISED mortgage lender Bradford & Bingley has revealed it could return to profitability this year, despite reporting annual losses of almost £200m.

The buy-to-let specialist, which was taken into Government ownership in 2008, wrote off 884.1m in soured loans in 2009, compared to 467.7m a year earlier.

B&B's 39bn mortgage book has deteriorated far worse than many of its peers, because of the number of buy-to-let and self certification mortgages it lent at the height of the housing boom.

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The provision included a 388.4m charge for fraud and professional negligence, more than double last year's 173.9m.

But B&B said the 196m loss was less than 2008's 278m deficit and beat its business plan.

Managing director Richard Banks said the lender has made "substantial progress" on its targets to create a business that is "fit for purpose".

"Subject to the market deteriorating which I do not think it will do materially from here... then we could see an improvement in our financial performance this year," said finance director Phillip McLelland.

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Mr Banks added: "It's absolutely the intention that this business will make profits. The big question is when.

"We should see that start to happen within the next year or so.

"We expect to make a further improvement this year. Whether we get to profit will depend on what the economy does."

Although 5.54 per cent of its 38bn loan book is three or more months in arrears, this is lower than the 5.88 per cent in the first half of 2009 thanks to lower interest rates and almost 100 extra staff focused on collection.

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The downward trend has continued so far during 2010 with arrears performance "better than anticipated", B&B said.

Mr Banks said the current low interest rate environment means many more householders are able to keep up with repayments.

"'Is there another peak heading our way?' I do not know," said Mr Banks. "There's no doubt interest rates have helped a lot of customers. However, the thing that nobody can protect against is unemployment."

The lender made more than 12,000 special arrangements to help customers falling behind with repayments last year, as well as supporting tenants left high and dry by bust buy-to-let investors. It repossessed 2,892 homes during the year, an increase of 92 per cent.

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While write-offs from fraud and professional negligence rocketed to 388.4m, B&B said it has taken a prudent view that does not account for money it may recover in future. The lender is understood to be pursuing legal action against surveyors for over-valuing properties at the height of the housing market.

"We would like to think we've kitchen sinked it," said Mr Banks. "We've gone through the whole of the portfolio in a very robust way. We don't expect any further major increase."

The lender's annual report also revealed a bonus tax liability of 37,000 after eight employees at B&B – including one director – earned bonuses totalling 274,000 for 2009. The payouts will be deferred for three years while Mr Banks voluntarily deferred the first 10,000 of a 30,000 bonus which would have been payable this year.

B&B, which employs 943 staff mainly at Crossflatts in West Yorkshire, paid staff bonuses totalling 2.1m for 2009, of which 1.4m is deferred. Mr Banks said it is "entirely appropriate to pay people bonuses for exceeding very stretching objectives". The average employee earned a 2,400 bonus.

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UKFI, which manages the Government's banking assets, is widely expected to merge B&B with Northern Rock's 'bad bank' but Mr Banks declined to comment on any progress.

Better times beckon at lloyds

Lloyds Banking Group yesterday revealed better-than-expected bad debts and "strong" trading so far this year should help the group deliver a profit.

The bank, 41 per cent owned by the taxpayer after its rescue takeover of Halifax Bank of Scotland last year, said it "believes it will be profitable on a combined basis in 2010". It made a 6.3bn loss in 2009.

Lloyds' unscheduled update sent shares up 8.2 per cent and prompted one analyst to speculate the Government could sell some of its stake before the General Election.

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The Government, which also holds an 84 per cent stake in Royal Bank of Scotland, has said it hopes to generate a profit for the taxpayer by selling its bank holdings, but has not set a timetable for disposals.

Lloyds said the improved outlook reflected "good" overall trading in the first ten weeks of 2010, with bad debts "trending at lower levels than anticipated", and costs falling compared with the same period last year.

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