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By James Redgrave | Published Oct 02, 2008

Job losses were straw that broke B&B's back

Just after 9 o'clock on Saturday morning, a number of key senior managers arrived at the FSA's Canary Wharf head office to continue a hastily called meeting that had broken up late the previous evening to discuss the crisis at the mortgage bank.

Within an hour, a decision was made to approach a number of leading UK and European banks through an information memorandum asking if they were willing to make a bid for the Bradford & Bingley savings business, excluding the assets such as its high street property.

The banks were given until Sunday morning to make a decision and most of them thought, understandably, that they were not given enough time.

There was also a suspicion that Santander had been looking at the B&B books since June and was already in pole position to make a strong bid.

On Sunday afternoon, an urgent conference call was made to the Treasury and the Bank of England informing them final action had to be taken against Bradford & Bingley. The chancellor was then called and he took the decision to nationalise on Monday morning before the London Stock Exchange started trading.

It was the obvious outcome after months of trouble at the crisis-torn mortgage bank which saw a succession of troubled rights issues and two failed attempted buyouts.

Under the deal, the government has taken on the B&B's loan book, including its mortgages, while Banco Santander has bought its £20bn of retail deposits and 197 branches, for £612m. It plans to incorporate this new business into its Abbey subsidiary.

The Treasury spent £4.5bn transferring deposit cash to Abbey on top of about £14m spent by the Bank of England on the same, to be refunded by B&B mortgage holders repayments.

Its mortgage debt is valued at about £41bn, which the government has taken on alongside the more than £100bn it took from Northern Rock. Already some industry insiders are wondering if the £500m needed to service the debt will not be a bridge too far.

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According to David Battersby, stock broker for Redmayne Bentley, the move is likely to further damage confidence in British banking, making mortgages and other loans harder still to come by as banks "compete even more to see who can lend the least".

He said: "Whatever the 'successful' outcome of this is, it does not solve the underlying problems in the industry. It stops us going into freefall but it does not stop the banks being reticent about lending to people.

"People coming to the end of fixed-rate mortgages with Bradford & Bingley will now be even less able to get a good rate for the future."

He also claimed job cuts are likely to be as many as two-thirds of branch staff across Santander's new UK high street empire.

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