Friday, UK bank Bradford & Bingley Plc (BB.L) reported a staturoty loss in its first-half compared to a profit last year, due to charges related to its structured and treasury investments and lower net interest income. A significantly higher loan impairment loss also impacted the results negatively. However, the company had underlying profit before taxation, though lower than last year's.
Further, Bradford & Bingley said its Board approved an interim dividend, and that it remains cautious on trading for the second half of the year. Bradford & Bingley also revised its fiscal 2008 net interest margin guidance.
The company's first-half loss was 17.2 million pounds or 2.8 pence per share, compared to profit of 129 million pounds or 20.4 pence per share a year ago.
The 2008-results included an impairment charge of 46.3 million pounds in the structured investment portfolio, 19.4 million pounds realized losses on sale of structured investments, and other fair value charges on treasury instruments of 45.1 million pounds.
However, these were partly offset by a hedge ineffectiveness gain of 6.2 million pounds, and gains on the repurchase of debt of 21 million pounds and the release in April of 14.3 million pounds of provision previously provided for compensation costs for misselling of investments and endowments. Last year's results included a hedge ineffectiveness loss of 0.6 million pounds.
Excluding items, Bradford & Bingley's six-month underlying earnings were 52.1 million pounds or 8.5 pence per share, lower than 129.6 million pounds or 20.5 pence per share recorded last year.
Statutory loss before tax was 26.7 million pounds, mainly reflecting losses on Treasury assets, compared with profit of 180.4 million pounds a year earlier. Underlying profit before tax declined to 70.2 million pounds from last year's 181.3 million pounds.
The loan impairment loss for the first half of the year reached 74.6 million pounds, significantly higher than 5.3 million pounds a year ago. The company's arrears levels also continued to rise, with arrears on organic loans considerably lower than arrears on acquired loans.
Commenting on the results, Rod Kent, Chairman, said, "In the light of the turbulence in the banking and housing sectors, the first six months of this year have been very challenging for B&B."
In the first half, net interest income reduced 9% to 246.7 million pounds from 271.2 million pounds in the previous year. Net interest margin declined 12 basis points to 0.98% from prior year's 1.10%. The company noted that its net interest income was broadly flat with last year, after adjusting for the disposal of the majority of commercial loan book and Housing Association loan portfolio in the second half of 2007.
Bradford & Bingley recorded underlying net income of 288.2 million pounds, down from 326.4 million pounds in 2007. Net operating income also fell to 228.6 million pounds from 316.7 million pounds a year ago.
During the period, the company's underlying non-interest income reduced to 41.5 million pounds from 55.2 million pounds last year, due to lower income from wealth and investment sales, lower mortgage administration charges and the company's withdrawal from commercial property lending.
Recently, Bradford & Bingley completed its 400 million pounds Rights Issue, making it one of the best capitalised banks in the UK.
On August 18, the company appointed a new chief executive, Richard Pym, succeeding Steven Crawshaw, who stepped down due to ill health.
Further, Bradford & Bingley said its Board has approved an interim dividend of 43.4 million pounds, equivalent to 3.0 pence per share for distribution on October 6 to shareholders on the register at the close of business on October 3. The dividend will be in the form of new shares.
Looking ahead, Bradford & Bingley said its Board remains cautious on trading for the second half of the year. Arrears and repossessions are expected to increase for the remainder of the year, reflecting ongoing weakness in the housing market and the wider economy. Also, net interest margin is projected to reduce further as the impact of higher funding costs will not be fully offset by the volume of new lending.
The company noted that it now expects fiscal 2008 net interest margin at the lower end of previously given 90-95 bps guidance.
Bradford & Bingley also plans to reduce mortgage volumes in the second half and into 2009 until the return of more favorable economic conditions. The Board therefore expects lending balances to reduce during the second half.
The company is currently working with GMAC-RFC to renegotiate their contract to take into account the changing economic conditions.
Bradford & Bingley also said it revised the terms of its Forward Sale Agreement with Kensington. Under the initial agreement signed in April 2007, the company acquired 12 portfolios with an aggregate value of 850 million pounds, and had committed to buy a further 1.150 billion pounds of mortgages by March 2009.
Following the revision, the contract has been extended by 25 months and by 132 million pounds, resulting in Bradford & Bingley to acquire a maximum aggregate value of 1.282 billion pounds by April 2011.
BB.L is currently trading at 50 pence on the LSE, down 0.25 pence or 0.50%, on a volume of 1.5 millio shares. In the past 52 weeks, shares have been trading in a broad range of 31 pence to 386.50 pence.
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