Bradford & Bingley's buy-to-let woes

Edited by Yvette Essen

Last Updated: 1:06am GMT 14/02/2008

lBradford & Bingley
187p -56¼
Questor says Sell

Bradford & Bingley's chief executive Steven Crawshaw and finance director Chris Wilford may have remained relaxed about the problems at the buy-to-let mortgage specialist, but investors weren't having any of it.

Yesterday's 23pc share price collapse was one of the steepest in its history. The bank, which was recently ejected from the FTSE 100, is now worth just £1.2bn. Yesterday's £346m fall in market value was more than double the £144m sub-prime related writedown.

Credit Suisse summed up the mood when saying that the discount will persist "until issues surrounding the treasury portfolio, the funding base and the quality of the loan portfolio are addressed". In other words, Mr Crawshaw and Mr Wilford have singularly failed to reassure.

In particular, a £250m exposure to a "synthetic" collateralised debt obligation, the kind of financial product markets now detest, spooked the City. Analysts said they were unaware of it while Mr Wilford insisted he provided all the guidance he could.

Either way, investor confidence is draining away amid surprise that so much of the treasury portfolio is invested in such dangerous vehicles. The share price fall reflects fears of further writedowns.

Having already unnerved the market, B&B added to the weak sentiment by revealing that bad debt provisions on its UK mortgage portfolio tripled to £22.5m last year. Most of that came in the final six months and the fear is that the forecast of £30m for this year may need to be revised upward, especially as total arrears and repossession levels are now running at 2.1pc of the entire book - up from 1.77pc last year.

Strip out all the problems and B&B performed respectably, with the underlying cost to income ratio shrinking to 42.8pc and profits climbing 5pc. The final 14.3p dividend, payable on May 2, increased the full-year payout by 5pc to 21p. There was also positive news on funding, as the bank raised a further £2bn that secures it through to 2009. Customer deposits have already grown by £1.2bn this year.

The positive news does not spell growth, though - it should simply dispel the worst Northern Rock-type fears. Long term, buy-to-let now looks like becoming a slower growing business that will be harder to fund.

Questor said investors should sell at 464p last year, and that remains the advice.

Liberty International
983p -25
Questor says Avoid

Liberty International has long prided itself on being one of the most defensive property companies in the UK. Its huge shopping centres - worth up to £1.2bn each - are designed to carry on churning out the returns whatever happens in the wider economy. At least that's the theory.

But increasingly, analysts and investors have been growing weary of hearing the same old story. Worries over the retail environment, coupled with concerns over how easy it is to value such huge assets when there are almost no deals going on at that level to use as a benchmark, have created an aura of unease around the company.

Liberty's chief executive, David Fischel, claims that by working on the tenant mix in the shopping centres and undertaking development work, the company can increase rents and up the value of its portfolio.

The problem is that not too many people agree with him at the moment. Analysts at JP?Morgan are warning that rents could fall next year and have an underweight rating on the company.

True, Liberty's assets and finances are very resilient. Unless there is a major downturn they are unlikely to lose much more value. The problem is that this inertia means they are unlikely to gain a lot of value when the economy rights itself.

With a dividend yield of 3pc, the company needs to find capital growth to bring in new investors. But in yesterday's results it revealed a 5pc fall in net asset value, sending its shares down to 983p.

We last wrote about Liberty in July 2006 when the shares were at £11.58, advising investors to take profits. Now we don't think there will be much in the way of profits to be had from the company for a while.