More on Bradford & Bingley
Bradford & Bingley: H1 results
Bradford & Bingley (B&B) reported pre-tax profits of £147.9m, up 6% over last year and in line with expectations. The driver of growth seems to have been cost reduction.
The interest spread has contracted to 1.01 from 1.08 a year ago, presumably due to the tighter lending market. The slowdown in the housing market has resulted in stiffer competition amongst banks while rising interest rates have put pressure on margins.
The slower markets resulted in gross new residential lending (which makes up 82% of total lending) reaching £2.5bn compared £4.1bn in the first half of last year. Total gross lending was also lower at £3.1bn (1H 2004: £4.8bn).
Arrears have also increased. In residential lending, loans in arrears reached 1% of the portfolio compared to 0.77% in the second half of last year. In the more risky buy-to-let market the deterioration was more marked with arrears rising to 0.93% from 0.52% over the same period.
The bank says underlying costs were reduced by 6% to £129.1m (1H 2004: £137.8m), a saving of £8.7m achieved at a cost of £2.3m.
Underlying costs are defined to exclude restructuring costs, compensation costs for potential claims for regulated investment business written, losses on the sale of businesses but include the net fair value gains on hedging instruments.
The bank says it is well on the way to delivering cost savings of £40m for the current year (the restructuring exercise is expected to cost £40m) but the real test will be ensuring the reductions stay in place over the next couple of years.
The housing market will tighten further and competition will increase putting further pressure on margins and loan growth. The share trades at 337.75p on a prospective PE (2005 earnings) of 10.3x within the sector range but its peers offer better value and a less volatile outlook.
The yield, however, is attractive at 5.3%
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