Northern Wreck to be nationalised - but B & B offers quick buck to be made

A Nationalisation bill for Northern Rock was agreed with the Conservative Party (NOT WITH VINCE CABLE IT SEEMS) Week Ending December 1st, to put Northern Wreck plc into public ownership - and to rush it through in one day before Christmas.

The Government wanted interested parties to submit final deals by the end of the week. Parliament went into recess on December 17 and returned on January 7.

The reason for this was 3 fold.

1. It gave the Gubment room for negotiations in dealings with Branson et al.
2. It put the bidders on notice that the Gubment meant bizniz
3. It pulled the rug out from under Vince Cable the only person to talk sense about Northern Wreck.

They now realise Vince's point that nationalisation is the "least worst solution" and have simply run out of road and with the budget looming on March 12th they want the whole thing buried before then.

Swift Bill rushed through - end of story. Draw a line, Move on... nothing to see here.... and all the gory details will be concealed from public gaze.

Hopwever here is something worth pondering

Bradford and Bingley share price has been sinking fast all year. 44% down over 6 months and a massive drop on last week of 27% to 176 p = Market Cap just over £1 Bn. Last weeks fall due to "Preliminary" results (i.e unaudited so beware) on Wednesday for Y/E 31st Dec.

Total dividend per share up 5% to 21.0p (2006: 20.0p)
Tier 1 capital ratio 8.6%, total capital ratio 15.1% (2006: 7.6%, 13.2%)
Residential lending balances up 27% to £39.4bn (2006: £31.1bn)
Savings balances up 7% to £21.0bn (2006: £19.7bn)
Group net interest margin 1.10% (2006: 1.19%)
Underlying cost:income ratio improved to 42.8% (2006: 44.2%)*
Underlying profit before tax up 5% to £351.6m (2006: £335.9m)*
Statutory profit before tax £126.0m (2006: £246.7m)*
Total customer deposits funded 60% of customer loans (2006: 61%)

Which is all very, very good news excpet the profit but then they have written off losses on sale of commercial and housing association portfolios of £58.0m, treasury asset "impairment" of £94.4m, hedge ineffectiveness of £23.5m and other fair value movements on treasury instruments of £49.7m.

Underlying costs increased by 3% to £280.2m (2006: £271.6m), improving the underlying cost:income ratio to 42.8% (2006: 44.2%) so no worries there of runaway costs.

The total number of cases three months or more in arrears and in possession has increased to 6,170 (2006: 4,337), equating to 1.63% (2006: 1.30%) of the total book. No real problems there although not ideal.

An improvement in loan-to-value across our whole residential lending portfolio adjusted for house price inflation is 55% (2006: 53%) providing a good level of equity.

Then the very good news ..

We grew the Group’s total assets by 15% to £52.0bn (2006: £45.4bn). This growth was due to a 27% increase in residential lending balances to £39.4bn (2006: £31.1bn) driven by record gross residential mortgage advances, up 36% at £14.0bn (2006: £10.3bn). Of this total, £9.7bn (2006: £7.7bn) was originated through intermediaries and direct channels, and £4.3bn (2006: £2.5bn) was purchased from GMAC-RFC and Kensington Mortgages. Our estimated share of net new lending in the UK mortgage market was 7.7%, more than double our share of outstanding balances of 3.3%.

Now remember the Market cap is £1 Bn. For this you get £50 odd Billion of assets and Total customer deposits £24 Billion which is funding 60% of customer loans.

The real worry is the asset mix ;
Buy-to-Let 45% (down from 40% so moving in the right direction)

Self-certified mortgages 16 %

Other residential ( ie traditional owner ocupier) 15%

Commercial and housing association 2% (down from 11%)

Wholesale / Other 22%

That Buy to Let looks unhealthy and if the market turns down current wisdom is that this will be hit first. But. But with increasing immigration and changing lifestyles renting is growing and demand is rising, not slowing, so perhaps this is even a plus.

All in all the shares (yielding 11.9% PE 6.25 !) look a good buy first thing in the morning. ... and if Lord Patel is not the only one working this one out then they could jump over £2.00 early doors giving an instant 10-12 % capital gain.

And of course if the bidders for Northern Wreck ( or anyone else) , now thwarted, have been running their ruler over B & B (which they most certainly have) and decide to make a bid ....?