Mortgage fraud adds to Bradford & Bingley's woes

Mortgage fraud adds to Bradford & Bingley's woes

Bradford & Bingley plunged into a £26.7m loss in the first half of the year after it was hit by a rise in mortgage arrears and fraud.

Arrears continued to rise and the outlook remained uncertain as the housing market continued to decline, the troubled lender reported today.

An £18m provision was needed to cover the extent of mortgage fraud, which pushed up the lender's credit impairment charges for the six months to £74.6m, from £5.3m in the same period last year.

Finance director Chris Wilford claimed the jump in fraud was in line with wider industry trends and the lender was not being targeted any more than its rivals.

In June B&B revealed a £15m charge to cover losses from fraud. Mr Wilford said no new scams had been discovered since then, but a charge of a further £3m against accrued arrears was needed to cover further losses.

Chairman Rod Kent explained that most of the scams uncovered in the last six months related to the activities of mortgage professionals and had come to light as a result of falling house prices. He said the alleged culprits were being pursued by the police and the regulator.

Wilford said the bank may recover a proportion of the losses from the professional indemnity insurers used by the fraudsters, but he had "prudently" written off all the losses in the accounts.

Kent said that while the lender had reported a loss of £26.7m, against a £180.4m profit.....continued below

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last year, underlying profit was £70.2m and showed B&B remained a robust business. He said a £400m rights issue also left the bank as one of Britain's better capitalised lenders.

"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. Although we clearly signalled this at our announcement on 2nd June, the results for the half year are, of course, disappointing," said Kent.

"The Board's priority has been to ensure that we can continue to fund our business safely and we have achieved this. With a strong capital base following our rights issue, our new chief executive, Richard Pym, will review our plans for the business to enable us to continue to operate effectively in these economic conditions," he said.

In a significant move, B&B said it was seeking to renegotiate a deal with loan company GMAC-RFC, which has left it with a book of loans described by many analysts as disastrous.

B&B said this morning that arrears on the GMAC loans were higher than on its own mortgages.

Pym said he would report in the autumn on the bank's direction. He said he would provide investors with a strategy that built on its strong brand.

A £400m rights issue should protect the bank from the worst the economy had to throw at it, Kent said. He had sanctioned borrowings of £1bn and may need to draw on another £1bn lending facility to see the bank through its next phase of development.

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