Bradford and Bingley Default

purch

This is from the first page of the Bradford & Bingley plc Annual Report & Accounts 2008

Now that it is in public ownership, Bradford & Bingley will be wound down.

Its over-arching objectives are to repay HM Treasury and the Financial Services Compensation Scheme ("FSCS") as soon as market conditions allow, and protect taxpayers, whilst also treating customers and creditors fairly.

Clearly they misunderstand what the word 'fairly' means :eek:

P.S. I think that saying that the U.K. Government has defaulted is not strictly correct, nor fair. If you personally owned stock in a Bank that defaulted on interest payments on paper, it would not be you personally who had defaulted.

Generali

Count_Dante wrote: »

Poster number 5 (MM) in the ft blog has some info:

Thanks Count_Dante, interesting stuff.

It's interesting that the UK Government is starting to shuffle around who it pays to. Presumably most holders of this debt will be other financial institutions or perhaps their asset management arms. Not paying out those interest payments could have a set of repercussions such as making people less willing to believe in Governemnt 'guarantees' or requiring Governements and 'guaranteed' financial institutions pay more for their debts..

mbga9pgf

purch wrote: »

. If you personally owned stock in a Bank that defaulted on interest payments on paper, it would not be you personally who had defaulted.

Yeah, but will the markets see it like that? That's all that matters.

tomterm8

Generali wrote: »

Bradford and Bingley borrowed money in a pretty normal way - that is they sold a piece of paper to investors stating that in return for a certain amount of money today they'd pay a regular interest payment each year and then return the cash that had been lent at the end of the period stated on the IOU.

When the Bradford and Bingley was bought, the liability for that debt transferred to the buyer. On the face of things, B&B was 'bought' by the UK Government and now the Government has apparently defaulted on the debt it took on.

So why has B&B/UK Government defaulted? Is it can't pay or won't pay? In either case, what does that mean for the biggest chunk of liabilities for nationalised and semi-nationalised UK banks, that group being depositors? Should the runs on UK banks have stopped if the Government can't pay out debts owed by those banks?

I'm sorry, I don't understand how this rates as a soverign default. If I buy a limited liability company, A, and it defaults it does not mean I have defaulted. Unless I guarantee the liabilities of A in some way, I am liable only to the extent of A's share capital.

Generali

purch wrote: »

P.S. I think that saying that the U.K. Government has defaulted is not strictly correct, nor fair. If you personally owned stock in a Bank that defaulted on interest payments on paper, it would not be you personally who had defaulted.

Strictly speaking, I agree. I'm being harsh.

However, if I bought a company and said like for example Ken Bates said when he bought Chelsea for a Quid that I'd back the debts and then went back on that promise then I'd be in default.

It seems like the Government is saying that they'll pay out on some debts but not others suddenly. Well that's fine but where's the next default going to occur? If it's not a default then what is it?

Generali

tomterm8 wrote: »

I'm sorry, I don't understand how this rates as a soverign default. If I buy a limited liability company, A, and it defaults it does not mean I have defaulted. Unless I guarantee the liabilities of A in some way, I am liable only to the extent of A's share capital.

Isn't the point that the UK govnerment agreed (on the face of things) to guarantee the liabilities of B&B? Perhaps I'm misunderstanding things but I;m pretty sure that's what was said at the time.

purch

Yeah, but will the markets see it like that? That's all that matters

You'd better hope they do, as the alternative is unthinkable !!! :eek:

1984ReturnsForReal_2

Its all going to get rather interesting again........

mbga9pgf

It doesnt in my mind tom, but at the end of the day, who is going to trust the government if they start allowing state institutions to default. In some way the deposit protection scheme is a guarantee (for depositors). I would love to see the effect this is going to have on soverign wealth funds buying up gilts and other UKPLC debt; this is definately a destabalisating move on the bond market though!

Either way, if I can nail 10-15% off a property I am viewing tomorrow I may be buying! (needs work though).

Generali

purch wrote: »

You'd better hope they do, as the alternative is unthinkable !!! :eek:

If this is seen even as a semi-default by the UK Government by the bond/Gilt markets (and to my mind it is a kinda minor default - like a missed credit card payment) then there is going to be a heap of repercussion.