Bradford & Bingley (B&B), Britain’s biggest buy-to-let lender, yesterday sold £4.2 billion of loans in preparation for further tightening of global credit markets.

The sale took the heat off B&B, which has been plagued by speculation that the liquidity drought would hit its business and force it to seek emergency government funding.

B&B said that the proceeds would “further increase the group’s liquidity and provide funding for attractive, higher-margin opportunities”.

The lender has seen more than 35 per cent wiped off its share price since the credit crisis began in August, but the stock gained 8p to close at 265p yesterday after B&B said that the sale of two loan books gave it a substantial cash cushion.

GE Real Estate snapped up £2 billion of B&B’s £2.8 billion portfolio of commercial loans. The lender was forced to sell the book for 4 per cent less than it was worth. But B&B also offloaded a £2.2 billion portfolio of Housing Association loans for 2 per cent above book value to Dexia, the Belgo-French financial services group.

The £4.2 billion on the sales comes on top of £2.5 billion that B&B has raised since September via the issue of covered bonds and securitising books of mortgages. Although yesterday’s sales have been planned since April, B&B is likely to have been given added impetus by uncertainty over when liquidity will return to the wholesale funding market.

Analysts said yesterday that the sales should allay any fears about the lender’s ability to fund its new business. Jon Kirk, a partner in financials research at Redburn Partners, said: “B&B no longer has funding issues to worry about.”

Alex Potter, a banks analyst at Collins Stewart, said that B&B’s funding position was the strongest of Britain’s small mortgage banks. Mr Potter predicted further pain, however, for UK banking stocks: “We do not believe we are yet at the bottom for the UK banks sector and the more retail-exposed, wholesale-funded [and also capital markets-geared] names will continue to lead the sector down,” he said. Mr Potter moved back from a “trading buy” recommendation on B&B to a “weak hold” yesterday.

Mr Kirk said that B&B’s loss on the sale to GE Real Estate indicated that British banks could see between 4 per cent and 13 per cent wiped off a single year’s profits by losses on commercial property. Royal Bank of Scotland was the most exposed to a downturn in the sector, Mr Kirk said, followed by HBOS, Lloyds TSB and Barclays.

A B&B spokeswoman said that the decision to sell the commercial portfolio had been influenced by new bank funding rules. Banks have to set aside more capital against commercial loans than residential loans under the Basel II rules coming into effect next year.

The Council of Mortgage Lenders estimates that lenders will sell £90 billion of new mortgages next year. To maintain its present market share, B&B needs to lend at least £2.5 billion. The funding that the bank has raised so far will allow it to meet this target easily.

B&B lent £4.5 billion in the first half of 2007, but this was a particularly busy year for mortgage lenders and most are predicting a slowdown in the coming year.

The Housing Association loan book generated £21 million in pretax profit last year for B&B, while the commercial portfolio generated £26 million for the bank. Analysts estimated that the disposals would result in a pretax loss of between £15 million and £40 million this year.

Mortgage brokers said that the current credit climate meant that most banks that sold packages of mortgages at the moment were being forced to sell them at below book value. B&B is thought to have bought large portfolios of commercial loans from GMAC earlier this year at a substantial discount.

Rob Clifford, chief executive of Mortgageforce, the mortgage broker, said: “B&B has a very sound business model and it will go on performing well because it’s very good at manufacturing profitable residential mortgages, partly through its Mortgage Express business, and is a class act as part of the residential portfolio acquisition market”.

In another move to bolster its funding, B&B on Monday launched a best-buy savings account with a 6.3 per cent annual equivalent rate. The My Time Postal Account will require a minimum £1,000 deposit and is open to savers with up to £2 million.

Mortgage demand

— Britons will borrow more than £90 billion in new mortgages next year

— Bradford & Bingley needs to lend £2.25 billion to retain its current market share

— B&B is the UK’s biggest buy-to-let lender. Buy-to-let comprises more than half of its total mortgage lending

— More than 20 per cent of B&B’s lending is on self-certified mortgages

— Britons had mortgages worth £345.2 billion outstanding last year UK banks lend £30 billion to mortgage borrowers in September

— Last year HBOS was Britain’s biggest mortgage lender, followed by Abbey, Northern Rock, Lloyds TSB, Nationwide and the Royal Bank of Scotland

Source: CML, Bradford & Bingley

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