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Another bank has hit the headlines for repercussions from the credit crunch.

In February this year Bradford & Bingley announced write-downs of more than £200m due to its exposure to the sub-prime market and losses on the sale of its commercial property portfolio.

On 1 May, reports hit that the former building society had axed about 100 mortgage advisers from its in-house team, followed shortly by the announcement of a £300m rights issue. A month down the line the UK’s biggest buy-to-let lender has made headlines again, this time following the announcement that private equity firm Texas Pacific Group will be buying a 23 per cent stake in the bank.

As concerns mount around rising arrears on Bradford & Bingley’s loan book, the industry has breathed a sigh of relief following the news of Texas Pacific Group’s intended buyout, which will provide the bank with a much needed capital injection and some breathing space amid a plummeting share price and growing mortgage defaults.

However, Bradford & Bingley’s subsequent decision to reduce the rights issue to £257m sent ripples through the City giving rise to speculation that the issue underwriters, Citigroup and UBS, could have threatened to pull out as the bank’s trading performance took a nosedive.

Despite reassurance from all possible corners that Bradford & Bingley is “not another Northern Rock” there is no mistaking that the lender is in hot water – it reported pre-tax losses of £8m in the first four months of this year and the number of landlords lagging behind on their mortgage payments, increased by 52 per cent between January and April this year.

Following the announcements on 2 June, shares in Bradford & Bingley fell by 32 per cent, hitting a record low of 60p, down more than 87 per cent from two years ago. Bradford & Bingley’s rapid tumble from grace has been attributed to poor information technology and poor communication with both shareholders and the City, evidential in the mixed signals which the lender sent to the industry – in a statement issued at the end of April Bradford & Bingley denied that it would need to raise capital through a rights issue, only to change course two weeks down the line, announcing a rights issue and offering investors 16 new shares for every 25 they already own, priced at 82p a share. Following the announcement of Texas Pacific Group’s buyout this was repriced to 55p a share.

Following the announcement of TPG’s buy-out this has since been repriced to 55p per share. The rights issue has sparked major dissatisfaction from Bradford & Bingley’s shareholders.

It is however clear that since the flotation of the former Bradford & Bingley Building Society in December 2000 the bank has changed its business strategy more often than the tides. Following demutalisation, Bradford & Bingley bought John Charcol for £102.5m to find a quick way into the distribution market. Four years later, John Charcol’s orignal founders bought out Bradford & Bingley, with the lender making a huge loss on the sale. In late 2006, in an attempt to become the UK’s leading specialist lender, Bradford & Bingley reverted to selling only their own mortgages under the Mortgage Express and Bradford & Bingley brands.

But as the UK’s largest buy-to-let lender today, the biggest concern surrounding B&B’s situtation has been the implications for the future of the buy-to-let sector. Does this signal a burial of the buy-to-let boom?

Bradford & Bingley has not been the only buy-to-let lender to feel the pinch. Following its trading statement issued on 2 June, Alliance & Leicester saw shares falling by more than 5 per cent. On the same day, HBoS and Royal Bank of Scotland, who have both turned to raising capital through an underwritten rights issue, issued ‘do not panic’ statements to the Stock Exchange, however, despite this HBoS shares fell by 10 per cent.

Vince Cable, Liberal Democrat shadow chancellor said the state of Bradford & Bingley provides worrying evidence of the serious problems faced by the UK, which is having a wider impact on banks’ share prices. Mr Cable said: “Buy-to-let mortgages are some of the worst examples of the irresponsible and unsustainable loans that have been offered by banks over recent years.”

He added: “This is a private sector problem, which needs private sector solutions. Bradford & Bingley has done the right thing by not coming to the government with a begging bowl.”

Despite Mr Cable’s harsh condemnation of the buy-to-let sector, according to the Council of Mortgage Lenders things are not as bad as they might seem and the buy-to-let sector in the UK still has a future.

Ray Boulger, senior technical manager for John Charcol, said: “The problem is that as most landlords come to the end of their initial short-term deal they are struggling to find a competitive deal to revert to. Rates have gone up considerably and have put landlords under enormous pressure, despite higher rental incomes. The one advantage which Bradford & Bingley has in this regard is that its LTV has never gone above 85 per cent, which means that there will be a fair bit of equity in most deals.”

According to data from the CML which shows that despite growing arrears in Bradford & Bingley’s mortgage book, the majority of buy-to-let landlords are still meeting their mortgage payments. In the first quarter of 2008, 0.9 per cent of buy-to-let mortgages were in arrears. This translates into an industry average of 99.1 per cent of landlords still meeting their mortgage payments.

A spokesman for the CML added that due to the dim outlook for capital growth, it does not expect to see any significant acquisitions in the buy-to-let sector, but because of the high financial costs of moving in and out of the market, they also do not expect to see many exits.

While the problems with Northern Rock and Bradford & Bingley are different, if there is one thing that the FSA’s report into Northern Rock and the recent news around Bradford & Bingley have in common it is the fact that besides exposing lenient lending policies, the credit crunch has ripped away at the shiny surface of UK financial institutions. It is worth noting that Texas Pacific Group will be paying £179m for almost a quarter stake in a company which at the height of business, two years ago, was valued at £3.2bn.

Today, Bradford & Bingley is capitalised at £545m. Cause for concern? Yes, Houston, we have a problem.

Maike Currie is deputy features editor of Financial Adviser