RNS Number : 2720C
Bradford & Bingley PLC
29 August 2008
Interim Financial Report
For the 6 months ended 30 June 2008
29 August 2008
The financial information in this document is unaudited and does not constitute statutory accounts within the meaning of section 240 of
the Companies Act 1985. The comparative figures included in this document for the financial year ended 31 December 2007 are not Bradford &
Bingley plc's statutory accounts for that financial year. Those accounts have been reported on by Bradford & Bingley plc's auditor and
delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section
237(2) or (3) of the Companies Act 1985. This document may contain forward-looking statements with respect to certain plans and current
goals and expectations relating to the future financial conditions, business performance and results of Bradford & Bingley plc. By their
nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of Bradford & Bingley plc including, amongst other
things, UK domestic and global economic and business conditions, market related risks such as fluctuation in interest rates and exchange
rates, inflation, deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries,
the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in
which Bradford & Bingley plc and its affiliates operate. As a result, Bradford & Bingley plc*s actual future financial condition, business
performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking
statements.
Interim Financial Report for the 6 months ended 30 June 2008
Commenting on the results, Rod Kent, Chairman, said:
"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.
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."
Key Points
* Completion of �400m Rights Issue; Bradford & Bingley is one of the best capitalised banks in the UK.
* New Chief Executive appointed. Richard Pym started on 18 August.
* Funding:
- continue to fund business successfully
- continued importance of Retail deposit
- prudent levels of liquidity.
* Slowing growth of mortgage balances.
* Underlying profit before tax of �70.2m.
* Statutory loss before tax of �26.7m, mainly reflecting losses on Treasury assets.
* Group net interest margin down to 0.98%, as previously indicated.
* Arrears levels continue to rise, as expected. Arrears on organic loans considerably lower than arrears on acquired loans.
* Outlook for second half:
- Board continues to be cautious on the economy and trading
- Trends in arrears and net interest margin expected to continue
- Reduction in mortgage balances planned
- Currently working with GMAC-RFC to renegotiate our contract
- Review of cost reductions underway
- Continue to build our strong franchise in the savings and buy-to-let markets
- New Chief Executive to set out plans for the business in the autumn.
Background and recent progress
As background to these results, at the beginning of June when Steven Crawshaw stepped down as Chief Executive due to ill health and we
issued a Trading Statement, the Board established four specific short-term priorities:
* to find a new Chief Executive;
* to undertake a review of the quality of management information;
* to improve the speed of reaction to such management information; and
* to complete the Rights Issue.
Progress has been made on all four objectives:
* On 18 August the Board was delighted to announce the immediate appointment of Richard Pym as the new Chief Executive. He has
highly relevant experience and is ideal for the role.
* PwC were appointed in June to conduct a review of our management information systems and quality of reporting. Their report showed
that the accuracy and reliability of our management information were not an issue, but the speed at which the information was disseminated,
interpreted and included in internal forecasting was too slow.
* Key information is now being disseminated much more rapidly to senior management on a daily and weekly basis. The Board now
receives flash reports on the previous month's trading within 10 working days. PwC continue to help us to improve our forecasting systems
and models.
* The Rights Issue has now been completed and monies received by the Company.
Profit and earnings per share
Underlying profit before tax was �70.2m (1H 2007: �181.3m). Underlying earnings per share were 8.5p (1H 2007: 20.5p). As previously
announced, the Board has approved an amount of �43.4m, currently equivalent to 3.0p per share which will be paid in shares as a scrip
interim dividend.
In order to provide a clear understanding of the ongoing performance of the Group, we report on underlying profits which exclude certain
items resulting from strategic decisions, material one-off items, hedge ineffectiveness or movements in fair value. Items excluded from
underlying profit in the first half of the year include an impairment charge in the structured investment portfolio of �64.8m, realised
losses on sale of structured investments of �27.2m, a hedge ineffectiveness gain of �8.7m and other fair value charges on treasury
instruments of �63.0m. Also excluded were the gains on the repurchase of debt of �29.4m and the release in April of �20.0m of provision
previously provided for compensation costs for misselling of investments and endowments.
Statutory loss before tax was �26.7m (1H 2007: �180.4m profit). Statutory loss per share was 2.8p (1H 2007: earnings per share 20.4p).
These items are explained on pages 9 and 10 and a reconciliation of statutory to underlying profit is provided on pages 11 and 12.
Income
The Group's net interest income reduced by 9% to �246.7m (1H 2007: �271.2m). Adjusting for the disposal of the majority of our
commercial loan book and Housing Association loan portfolio in the second half of 2007, net interest income was broadly flat year-on-year,
with lower interest margins offset by the growth in our residential lending book.
In line with previous guidance, the Group's net interest margin declined by 12 basis points to 0.98% (FY 2007: 1.10%). The margin
decline was the result of three factors. Firstly, there was a lag in recovering higher funding costs through new business pricing as the
effect of repricing liabilities is felt more quickly than the repricing of assets. Secondly, the rate of mortgage redemptions slowed
significantly with the net redemption rate during the first half running at 12.4% (FY 2007: 18.5%). Thirdly, competition for retail savings
has intensified in the past year with the result that the cuts in base rate have not been reflected in market pricing of new retail
deposits.
Underlying non-interest income reduced as expected during the first half to �41.5m (1H 2007: �55.2m), due to lower income from wealth
and investment sales, lower mortgage administration charges and our withdrawal from commercial property lending.
For further information see Notes 3 and 4.
Costs
Underlying costs increased by 3% to �143.4m (1H 2007: �139.8m), with an increase in the underlying cost:income ratio to 49.8% (1H 2007:
42.8%). To support our focus on retail savings, we increased spend on advertising, launching a campaign in June. During the first half of
2008 we reduced the number of mortgage advisers in the branches from 160 to 50, due to lower mortgage volumes, which will benefit underlying
costs in the second half.
The Company is currently reviewing further opportunities to reduce the Group's cost base.
For further information see Note 5.
Credit quality and impairment
Arrears have continued to increase as expected reflecting tough economic conditions, and we anticipate this trend will continue
throughout the second half. Mortgages 3 months or more in arrears in the organic mortgage book rose to 1.78% (FY 2007: 1.20%). Within our
acquired mortgage book the number increased to 5.11% (FY 2007: 3.04%). The total number of cases across the whole mortgage book 3 months or
more in arrears was 2.29% (FY 2007: 1.48%). In addition, properties in possession as a proportion of total loans were 0.19% (FY 2007:
0.15%).
The credit impairment charge for the first half of the year was �74.6m (1H 2007: �5.3m). The increase in this charge is due mainly to
the growth in mortgages 3 months or more in arrears. Regionally weighted house price deflation of 5% in the first six months accounts for
�10m of the charge, and �18m relates to a number of organised mortgage frauds. The impairment provision at 30 June stood at �101.5m (FY
2007: �54.8m) representing 0.25% of residential loans (FY 2007: 0.14%).
We have taken action in the collections area to detect early arrears cases, improve collections processes and increase staffing levels.
We have also reduced mortgage acquisitions to the minimum possible under our contracts, and are conducting more intensive due diligence on
these portfolios to ensure that purchased loans conform more closely to underwriting standards implicit in mortgages originated by Bradford
& Bingley.
Credit criteria have been tightened during the period, including capping the maximum LTV for self-cert to 75% and extending LTV-based
pricing on buy-to-let loans. The average loan-to-value across our whole residential lending portfolio adjusted for house price inflation is
60% (1H 2007: 55%) with only 5% of the book above 95% LTV. The average LTV on new lending in the first half was 77% (1H 2007: 74%),
reflecting the completion of the loans originated at the end of 2007 and early this year, before the adjustment of lending criteria.
For further information see Notes 11, 12 and 13.
Structured Finance Portfolio
The structured finance portfolio stood at �747m at 30 June, net of fair value adjustments, impairments and embedded derivatives. This
compares to �847m at the end of April and �1,126m at the end of December 2007. �223m of this reduction during the first half has come from
disposals, of which �68m was made in May and June.
Since the end of June, synthetic CDOs with a value of �22m (net of embedded derivatives) have been sold at a loss on sale of �3m. As a
result of these sales, we no longer have any synthetic investments being valued through the Income Statement. Around 60% of the remaining
current structured finance portfolio consists of Principal Protected Notes.
We will continue to reduce further our exposure to these assets.
Lending balances
Residential loans outstanding grew by �1.9bn during the first half of the year, with residential balances at �41.3bn (FY 2007: �39.4bn).
Our appetite for new lending has slowed during the period, reflecting higher customer retention and continued tightness in term funding
markets. Net lending in May and June was a little over half the rate of the previous four months. We have reduced mortgage originations by
focusing on higher quality loans and increasing price in line with the market. Mortgage acquisitions have also been scaled back to the
minimum. Gross new residential lending fell to �4.4bn from �7.2bn in the first half of last year. Three quarters of this gross lending was
originated by Bradford & Bingley with one quarter acquired. Net new lending fell to �1.9bn from �4.5bn a year ago. This represented some 8%
of the UK mortgage market compared to our share of outstanding balances of 3.4%. Of this total, �1.7bn (1H 2007: �2.6bn) was originated
through intermediaries and direct channels, and �0.2bn (1H 2007: �1.9bn) was acquired, reflecting lower volumes of acquisitions and significantly higher redemption rates on acquired loans than
those originated by Bradford & Bingley. Net mortgage redemptions have been running at 12.4% during the first half of the year, compared to
18.5% for FY 2007. The level of redemptions in our organic book was 10% (1H 2007: 16%) compared to 21% (1H 2007: 24%) in the acquired book.
For further information see Note 10.
Mortgage acquisition agreements
We have agreed with Kensington to vary the Forward Sale Agreement originally signed in April 2007. Under the original agreement, 12
portfolios have been acquired with an aggregate value of �850m and there was a commitment to purchase a further �1,150m of mortgages by
March 2009. Under the revised agreement, Bradford & Bingley will acquire a maximum aggregate value of �1,282m by April 2011. The contract
has thereby been extended by 25 months and the value increased by �132m. The acquired loans will continue to be on similar credit terms and
pricing to those originated through our direct and intermediary specialist lending channels.
We are currently working with GMAC-RFC to renegotiate our contract to take into account the changing economic conditions.
Funding
As a focused business within a sector that is currently going through a cyclical downturn, Bradford & Bingley has experienced a
particularly challenging first half. We have witnessed unprecedented financial dislocation, with wholesale medium-term funding markets being
difficult to access since last summer. Despite this widespread dislocation, we have successfully funded the bank.
At the end of June, total customer deposits of �24.5bn funded 58% of customer loans (1H 2007: 58%). Retail savings balances increased by
�1.2bn since the end of the year to �22.2bn. The investment and focus on our branch based deposits has been effective, with balances
increasing by 13% to �16.2bn during the first six months and 22% since June 2007. We had a strong ISA season and were also successful with
fixed-rate bonds. Intense coverage of events in June and July, including the reduction in the Company's credit rating and the withdrawal of
TPG, was followed by some withdrawal of customer deposits. This abated in August and we are again experiencing savings balance growth in the
UK. Offshore deposits are more sensitive to credit ratings and have declined gradually over the past year.
Committed secured medium term funding at �2.0bn was arranged at the beginning of the year and half of this was drawn in June. We
continue to package mortgage collateral into securities that support our main secured funding vehicles: Aire Valley Master Trust, Bradford &
Bingley Covered Bonds LLP and Bowler Finance plc. These vehicles are well funded and collateralised and are proving effective. In tandem
with retail deposits, these secured funding channels will continue to feature in our funding plans. The reduction in the Group's short term
credit rating in June has made short term borrowings a less attractive source of funding and we expect to replace the bulk of these
liabilities with secured medium term funds by the end of the year.
For further information see Note 14.
Mortgage product and distribution strategy
The buy-to-let market remains supported by tenant demand, increasing rents and falling voids. Rental yields lifted in the first half of
the year to 6.1% (1H 2007: 5.6%). The buy-to-let market as a whole grew by 8.5% to �132bn, which equates to 11% of the total mortgage
market. We grew buy-to-let balances by �1.6bn in the first half and our market share of balances remained stable at 19% (FY 2007: 19%).
The average LTV of buy-to-let loans completing in the first half was 78% (1H 2007: 76%), which included loans on 2007 pricing and
criteria. The average indexed LTV across the buy-to-let book is 69% (1H 2007: 65%) with an average loan size of �122,000 (1H 2007:
�119,000).
During the first half, we made significant changes to our self-cert offering by cutting the maximum LTV from 90% to 75%, and focusing on
longer term deals. The average LTV of self-cert lending was 82% on completed loans (1H 2007: 83%) and the average indexed LTV across the
self-cert book is 75% (1H 2007: 72%) with an average loan size of �156,500. In recent months, our focus in the specialist market has been on
buy-to-let loans, and we anticipate this focus to continue. As a consequence, self-cert origination will continue to fall in the second half
of the year.
We recently announced changes to our intermediary distribution. We have narrowed our range of distribution outlets, no longer accepting
business from the majority of packagers, and have reduced the number of key accounts by 70%. These reductions will allow us to manage
channels and deals on a 'limited tranche' basis, giving more profitable, better controlled distribution with lower costs, lower risks and
tighter management of volume and quality.
Capital
The recent rights issue is complete and the �400m raised ensures that we are one of the best capitalised UK banks. The Board believes
that the raising of capital was the right course of action to strengthen our capital base and mitigate the impact of the reductions in value
of certain of the Group's treasury investments over the past 8 months. On a proforma basis, the rights issue increases our tier 1 capital
ratio to 9.9%, our core tier 1 ratio to 9.1% and our total capital ratio to 16.3%. Our tier 1 target ratio is between 8% and 10%.
Dividend
Approval was given by shareholders at the EGM on 17 July 2008 for the interim dividend to be paid in shares. The Board has approved an
interim dividend amount of �43.4m, currently equivalent to 3.0p per share for distribution on 6 October 2008 to shareholders on the register
at the close of business on 3 October 2008. The price used to calculate shareholders' entitlement to new shares, has been determined by the
mid market price per share at the close of business yesterday, 28 August 2008. Regarding the final 2008 dividend to be paid in May 2009, as
previously announced the Board will take a decision closer to the date, taking into account trading and economic conditions at that point.
In normal trading circumstances, over the medium term the Board will target dividend cover of between 2.0 and 2.5 times underlying
earnings.
People
We have witnessed particularly testing times during the first half of the year, and the Board would like to thank all colleagues at
Bradford & Bingley for their continued dedication, professionalism and team-work during this time.
Steven Crawshaw stepped down as Chief Executive at the beginning of June due to ill-health caused by a severe cardio-vascular condition.
The Board would like to thank him for his service to the company and to send him our best wishes for his recovery.
Outlook
The Board remains cautious on trading for the second half of the year.
In the light of continuing weakness in the housing market and the wider economy, we continue to expect arrears and repossessions to
increase for the remainder of the year, although we will be putting further resources into tackling the problem.
The impact of higher funding costs will not be fully offset by the volume of new lending and so we continue to expect that our net
interest margin will reduce further. The outlook for the net interest margin over the full year is at the lower end of the 90-95 bps
guidance we gave in June.
In terms of lending, the main area of focus remains buy-to-let, where tenant demand remains strong and rents are rising. However, we
plan to reduce mortgage volumes in the second half and into 2009 until more favourable economic conditions return. The Board therefore
expects lending balances to reduce during the second half of the year. We are in negotiations with GMAC as to the future of our agreement
with them.
Bradford & Bingley is adapting its business to an extraordinary market climate. We are undertaking a further review of our cost base and
we are maintaining our prudent approach to funding, with retail deposits remaining a focus.
Bradford & Bingley has a strong franchise in its core savings and buy-to-let markets. The buy-to-let market continues to hold up well
and these loans account for some 60% of our total balances and are experiencing lower arrears than other parts of our portfolio.
Our new Chief Executive, Richard Pym, brings a wealth of experience to our business, and he will set out the plans for the business in
the autumn.
Items excluded from underlying profits
In order to enable stakeholders to obtain a clear view of the ongoing performance of the Group, the Board excludes certain items that
are the result of long-term strategic decisions and/or the impacts of unusual or extreme external events and accounting volatility that can
have a distorting effect on financial performance in single reporting periods. Profit excluding such items is defined as underlying profit.
The following items are not included in underlying profit.
For further information see the tables on pages 11 and 12.
Compensation costs for mis-selling of investments and endowments
In June 2006 a provision of �89.4m was charged to account for the costs of claims for misselling of endowment and investment products by
the Group's closed independent financial advisory business. The level of claims and payments from this provision has been below that
originally anticipated at the time the provision was made. Therefore, �20m of the provision was released. The provision remaining at 30 June
2008 was �28.2m, as reported in the trading statement on 2 June, and we remain comfortable that this is appropriate.
Structured Finance Portfolio
As at 30 June 2008, the net carrying value of the structured finance portfolio was �747.2m compared to �1,126.1m as at 31 December 2007.
Of this, �415.2m are investments in Principal Protected Notes. Investments in SIVs and in CDOs have reduced in value to �9.0m (FY 2007:
�63.5m) and �55.8m (FY 2007: �171.0m) respectively.
We continue to monitor all investments in the portfolio closely and, where there is evidence that an asset is impaired, the asset is
valued at current market prices with any reduction in value recorded in the Income Statement as an Impairment Charge. During the first half,
the amount of impairment was �64.8m (FY 2007: 94.4m).
During the first half, the fair value of embedded derivatives predominantly linked to synthetic CDOs within the structured investment
portfolio, has fallen by �63.0m (FY 2007: �49.7m). This change in value is recorded in the Income Statement.
We value all assets in the portfolio using the available market price and have taken steps to minimise the level of exposure wherever
possible. Consequently, assets with a value at sale of �222.8m have been sold incurring a loss on sale of �27.2m.
Hedge ineffectiveness
Hedge ineffectiveness represents the amounts of accounting fair value difference in the future cash flows of hedged items compared to
the hedging instruments. The majority of these items are fixed rate mortgage and savings related swaps and from an economic perspective are
matched to customer balances. Over time, this value will revert to zero as the hedged items mature. However, in each accounting period there
may be accounting volatility arising from small mis-matches in the timing of the payments and receipts on these hedged amounts. During the
first half the value of hedge ineffectiveness recorded in the Income Statement was a profit of �8.7m (1H 2007: loss of �0.9m, FY 2007: loss
of �23.5m).
Gains on repurchase of debt
During the six months to June 2008, the Group has repurchased previously issued debt instruments in the market realising gains of
�29.4m. The pricing of these instruments, due to reduced liquidity, provided the opportunity to generate a profit on purchase that mitigated
losses arising on sales of assets in the Structured Finance Portfolio. No further repurchase transactions are envisaged.
Fair value movements in reserves
In compliance with International Financial Reporting Standards, certain fair value movements are accounted for in the Balance Sheet as
movements in Reserves.
All of the Group's wholesale assets are held as available-for-sale with any movements in value of these assets being recorded in the
available-for-sale reserve unless they become impaired. In addition to the amounts recorded in the Income Statement and explained in the
preceding paragraphs, the Group has recorded a reduction in reserves of �80.7m after tax (1H 2007: �3.6m, FY 2007: �60.4m) in respect of the
fair value movement on these items.
The Group uses cash flow hedge accounting in respect of some of its swaps. Movements in the value of these swaps in the first half has
created an increase in reserves after tax of �113.3m (1H 2007: increase �76.4m, FY 2007: decrease �81.0m). Changes in the value of these
swaps leads to volatility in the Group's reserves.
Analysis of Profits and Earnings Per Share
In order to enable stakeholders to obtain a clear view of the ongoing performance of the Group, the Board also provides information
which excludes certain items that are the result of long-term strategic decisions and/or the impacts of unusual and extreme external events
and accounting volatility arising from movements in market values of financial instruments that can have a distorting effect on financial
performance in single reporting periods. Profit excluding such items is defined as underlying profit. The items not included in underlying
profit in the first half of 2008 are the impairment of wholesale assets, hedge ineffectiveness, realised gains less losses on structured
investments and debt, release of surplus provision for compensation claims and fair value movements on treasury instruments. In 2007, the
loss on sale of commercial and housing association loans was not included in underlying profit. These items are discussed in detail on pages
9 and 10. An explanation of the 'Underlying' and 'Statutory' accounting bases is provided on page 12.
Details of the profit before tax, profit for the financial period and earnings per share ("EPS") on each basis are presented in the
following table:
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
Statutory Basis
(Loss)/profit before taxation �m (26.7) 180.4 126.0
(Loss)/profit for the financial �m (17.2) 129.0 93.2
period
Basic EPS p (2.8) 20.4 14.9
Underlying Basis
Underlying profit before taxation �m 70.2 181.3 351.6
Underlying profit for the �m 52.1 129.6 251.1
financial period
Underlying basic EPS p 8.5 20.5 40.2
Reconciliation of Statutory and Underlying Measurements
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
Profit before taxation
Statutory (loss)/ profit before �m (26.7) 180.4 126.0
taxation
Release of surplus provision for �m (20.0) - -
compensation claims
Fair value movements:
Embedded derivatives �m 63.0 - 49.7
Hedge ineffectiveness �m (8.7) 0.9 23.5
Investment impairment loss �m 64.8 - 94.4
Loss on sale of assets �m - - 58.0
Realised losses on structured �m 27.2 - -
investments
Realised gains less losses on �m (29.4) - -
debt repurchased
Underlying profit before taxation �m 70.2 181.3 351.6
Earnings per share
Statutory (loss)/ profit for the �m (17.2) 129.0 93.2
financial period
Release of surplus provision for �m (14.3) - -
compensation claims
Fair value movements:
Embedded derivatives �m 45.1 - 34.8
Hedge ineffectiveness �m (6.2) 0.6 16.4
Investment impairment loss �m 46.3 - 66.1
Loss on sale of assets �m - - 40.6
Realised losses on structured �m 19.4 - -
investments
Realised gains less losses on �m (21.0) - -
debt repurchased
Underlying profit for the �m 52.1 129.6 251.1
financial period
Weighted average number of m 611.5 631.2 624.2
ordinary shares
Underlying earnings per share p 8.5 20.5 40.2
Reconciliation of Statutory and Underlying Measurements (continued)
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
Taxation charge
Statutory taxation (credit)/charge �m (9.5) 51.4 32.8
Taxation of:
Release of surplus provision for �m (5.7) - -
compensation claims
Fair value movements:
Embedded derivatives �m 17.9 - 14.9
Hedge ineffectiveness �m (2.5) 0.3 7.1
Investment impairment loss �m 18.5 - 28.3
Loss on sale of assets �m - - 17.4
Realised losses on structured �m 7.8 - -
investments
Realised gains less losses on debt �m (8.4) - -
repurchased
Underlying taxation charge �m 18.1 51.7 100.5
Underlying profit before taxation �m 70.2 181.3 351.6
Underlying effective tax rate % 25.8 28.5 28.6
Proforma Rights Issue Impact
As at 30 June Net proceeds of rights Proforma
2008 issue1
Shareholders' equity �m 1,144 400 1,544
Wholesale assets �m 8,037 400 8,437
Net assets per share � 1.85 0.48 1.07
Risk weighted assets �m 17,486 - 17,486
Core tier 1 capital2 �m 1,184 400 1,584
Total tier 1 capital �m 1,332 400 1,732
Core tier 1 ratio % 6.8 2.3 9.1
Total tier 1 capital ratio % 7.6 2.3 9.9
Total capital ratio % 14.0 2.3 16.3
1. New capital raised in August 2008.
2. Core tier 1 capital equals total tier 1 capital less innovative and non-innovative tier 1 instruments.
Further details of the rights issue are provided in note 18.
Accounting Bases
The Group's financial information is prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union
and with the Disclosure and Transparency Rules of the UK FSA. This is the 'Statutory Basis' of presentation of the Group's financial
information. In addition, information is presented on the 'Underlying Basis' which applies to certain measures of performance. The items not
included in underlying profit are the loss on sale of commercial and housing association loans, the impairment of wholesale assets, hedge
ineffectiveness, realised gains less losses on structured investments and debt, release of surplus provision for compensation claims and
fair value movements on treasury instruments.
Summary of Results
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007
2007
Key Performance Indicators
Underlying profit before �m 70.2 181.3 351.6
taxation*
(Loss)/profit before taxation �m (26.7) 180.4 126.0
Net interest margin % 0.98 1.14 1.10
Underlying cost: income % 49.8 42.8 42.8
ratio**
Underlying earnings per share* p 8.5 20.5 40.2
Basic earnings per share p (2.8) 20.4 14.9
Underlying return on equity* % 8.8 17.3 19.1
Dividend per share p *** 6.7 21.0
Indexed LTV % 60 54 55
Residential:
Gross advances �bn 4.4 7.2 14.0
Net advances �bn 1.9 4.5 8.3
Redemptions �bn 2.5 2.7 5.8
Redemptions (% opening book) % 12.4 17.2 18.5
Funding Mix:
Retail % 43 39 40
Wholesale % 19 25 23
Securitised % 18 17 17
Covered bonds % 13 11 13
Capital/other % 7 8 7
Asset Mix:
Buy-to-let % 47 39 45
Self-cert % 17 15 16
Other residential % 15 14 15
Commercial and housing % 2 10 2
association
Wholesale/other % 19 22 22
Lending balances - total �bn 42.2 40.6 40.4
Residential �bn 41.3 35.6 39.4
Commercial �bn 0.9 2.8 0.9
Housing association �bn - 2.2 0.1
Retail savings balances - �bn 22.2 20.5 21.0
total
Branch based �bn 16.2 13.3 14.4
Direct �bn 4.0 4.2 4.2
Offshore �bn 2.0 3.0 2.4
Customer deposits: customer % 58.0 58.0 60.0
loans
Capital Structure
Tier 1 �m 1,332.4 1,562.0 1,436.9
Tier 2 �m 1,206.5 1,226.4 1,227.1
Tier 1 ratio % 7.6 8.5 8.6
Total capital ratio % 14.0 14.7 15.1
Risk weighted assets �bn 17.5 18.4 16.7
Pro-forma core tier 1 % 9.1 n/a n/a
ratio****
Pro-forma total tier 1 capital % 9.9 n/a n/a
ratio****
* The Underlying basis is defined and analyses of underlying profit, costs and earnings per share are provided on pages 11 and 12.
** Underlying cost: income ratio represents underlying administrative expenses divided by the sum of underlying net operating income and
non-operating income.
*** A 2008 interim scrip dividend will be paid in shares; further details are provided in note 8.
**** These pro-forma ratios reflect the rights issue detailed in note 18.
Summary Income Statement
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Net interest income 246.7 271.2 547.7
Non interest income 41.5 55.2 106.6
Underlying net income 288.2 326.4 654.3
Realised gains less losses on 2.2 - -
structured investments and debt
Fair value movements:
Embedded derivatives (63.0) - (49.7)
Hedge ineffectiveness 8.7 (0.9) (23.5)
Net income 236.1 325.5 581.1
Administrative expenses:
Ongoing (143.4) (139.8) (280.2)
Release of surplus provision for 20.0 - -
compensation claims
Loan impairment loss (74.6) (5.3) (22.5)
Investment impairment loss (64.8) - (94.4)
Loss on sale of assets - - (58.0)
(Loss)/profit before taxation (26.7) 180.4 126.0
Release of surplus provision for (20.0) - -
compensation claims
Fair value movements:
Embedded derivatives 63.0 - 49.7
Hedge ineffectiveness (8.7) 0.9 23.5
Investment impairment loss 64.8 - 94.4
Loss on sale of assets - - 58.0
Realised losses on structured 27.2 - -
investments
Realised gains less losses on debt (29.4) - -
repurchased
Underlying profit before taxation 70.2 181.3 351.6
Summary Balance Sheet
As at 30 June 30 June 31 December
2008 2007 2007
�m
Loans and advances to customers:
Residential mortgages 41,288.9 35,607.5 39,422.3
Commercial and other secured loans 907.9 4,955.2 1,022.2
Wholesale assets 8,036.8 10,923.5 9,565.0
Fair value adjustments on portfolio (176.7) (333.1) (53.8)
hedging
Derivative financial instruments 1,958.8 772.4 1,175.4
Fixed and other assets 234.3 181.2 853.5
Total assets 52,250.0 52,106.7 51,984.6
Retail deposits 22,212.0 20,456.6 20,988.0
Non-retail deposits 26,647.0 27,381.0 27,547.1
Fair value adjustments on portfolio (21.5) (18.2) (5.9)
hedging
Derivative financial instruments 562.4 881.3 498.6
Other liabilities 348.3 495.3 330.7
Interest-bearing capital 1,357.4 1,340.3 1,415.3
Equity 1,144.4 1,570.4 1,210.8
Total equity and liabilities 52,250.0 52,106.7 51,984.6
Independent Review Report to Bradford & Bingley plc
Introduction
We have been engaged by the Company to review the condensed set of Financial Statements in the half-yearly Financial Report for the six
months ended 30 June 2008 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Statement of
Recognised Income and Expense, Consolidated Cash Flow Statement and the related explanatory notes. We have read the other information
contained in the half-yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with
the financial information in the condensed set of Financial Statements.
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has
been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for
this report or for the conclusions we have reached.
Directors' responsibilities
The half-yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for
preparing the half-yearly Financial Report in accordance with the DTR of the UK FSA.
As disclosed in note 2, the annual Financial Statements of the Group are prepared in accordance with IFRS as adopted by the EU. The
condensed set of Financial Statements included in this half-yearly Financial Report have been prepared in accordance with IAS 34 "Interim
Financial Reporting" as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the half-yearly Financial
Report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the UK. A review
of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of
all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the
half-yearly Financial Report for the six months to 30 June 2008 is not prepared, in all material respects, in accordance with IAS 34 as
adopted by the EU and the DTR of the UK FSA.
KPMG Audit Plc
Chartered Accountants
Leeds
28 August 2008
Condensed Financial Statements
Consolidated Income Statement
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Interest receivable and similar income 1,526.4 1,410.2 2,967.5
Interest expense and similar charges (1,279.7) (1,139.0) (2,419.8)
Net interest income 246.7 271.2 547.7
Fee and commission income 30.9 42.4 81.7
Realised gains less losses on 0.3 0.3 6.5
financial instruments
Realised gains less losses on 2.2 - -
structured investments and debt
Fair value movements:
Embedded derivatives (63.0) - (49.7)
Hedge ineffectiveness 8.7 (0.9) (23.5)
Other operating income 2.8 3.7 9.6
Net operating income 228.6 316.7 572.3
Administrative expenses
- Ongoing (143.4) (139.8) (280.2)
- Release of surplus provision for 20.0 - -
compensation claims
Loan impairment loss (74.6) (5.3) (22.5)
Investment impairment loss (64.8) - (94.4)
Loss on sale of assets - - (58.0)
Non-operating income 7.5 8.8 8.8
(Loss)/profit before taxation (26.7) 180.4 126.0
Taxation credit/(charge) 9.5 (51.4) (32.8)
(Loss)/profit for the financial period (17.2) 129.0 93.2
Earnings per share:
- Basic (2.8)p 20.4p 14.9p
- Diluted (2.8)p 20.4p 14.9p
The results above arise from continuing activities and are attributable to the equity shareholders.
Consolidated Balance Sheet
As at 30 June 30 June 31 December
2008 2007 2007
�m
Assets
Cash and balances at central banks 193.6 195.8 209.2
Treasury bills 241.6 - 185.0
Loans and advances to banks 2,972.9 4,863.2 2,392.1
Loans and advances to customers 42,196.8 40,562.7 40,444.5
Fair value adjustments on portfolio (176.7) (333.1) (53.8)
hedging
Debt securities 4,628.7 5,864.5 6,778.7
Derivative financial instruments 1,958.8 772.4 1,175.4
Prepayments and accrued income 38.7 25.8 28.5
Other assets 12.8 7.8 653.7
Deferred tax assets 34.0 - 23.8
Property, plant and equipment 108.2 99.4 106.5
Intangible assets 40.6 48.2 41.0
Total assets 52,250.0 52,106.7 51,984.6
Liabilities
Deposits by banks 4,598.1 1,757.5 2,074.4
Customer accounts 24,463.1 23,594.6 24,152.6
Fair value adjustments on portfolio (21.5) (18.2) (5.9)
hedging
Derivative financial instruments 562.4 881.3 498.6
Debt securities in issue 19,797.8 22,485.5 22,308.1
Other liabilities 156.3 148.5 141.2
Accruals and deferred income 76.0 88.7 84.1
Current tax liabilities 74.3 127.5 23.7
Deferred tax liabilities - 43.3 - -
Post-retirement benefit obligations 11.1 7.7 22.0
Provisions 30.6 79.6 59.7
Subordinated liabilities 1,201.9 1,192.3 1,253.7
Other capital instruments 155.5 148.0 161.6
Total liabilities 51,105.6 50,536.3 50,773.8
Equity
Capital and reserves attributable to
equity holders:
- Share capital 154.4 158.6 154.4
- Share premium reserve 4.9 4.9 4.9
- Capital redemption reserve 29.2 25.0 29.2
- Other reserves (89.7) 91.9 (122.3)
- Retained earnings 1,045.6 1,290.0 1,144.6
Total attributable equity 1,144.4 1,570.4 1,210.8
Total equity and liabilities 52,250.0 52,106.7 51,984.6
Consolidated Statement of Recognised Income and Expense
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Available-for-sale instruments:
- Net losses recognised in (137.3) (4.6) (82.9)
equity during the period
- Amounts transferred from 25.2 (0.4) (3.4)
equity and recognised in profit
during the period
Cash flow hedges:
- Net gains/(losses) recognised 161.8 108.1 (110.5)
in equity during the period
- Amounts transferred to profit (4.6) (2.8) (2.8)
and loss for the period
Actuarial gains on 4.6 69.6 53.3
post-retirement benefit
obligations
Taxation on the above items taken (13.8) (48.3) 42.8
directly to equity
Net income/(expense) recognised 35.9 121.6 (103.5)
directly in equity
(Loss)/profit for the financial (17.2) 129.0 93.2
period
Total recognised income and 18.7 250.6 (10.3)
expense for the financial period
Consolidated Cash Flow Statement
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Cash flows from operating
activities
(Loss)/profit for the financial (17.2) 129.0 93.2
period
Adjustments to reconcile net
(loss)/profit to cash flow
from/(used in) operating
activities:
Income tax (credit)/charge (9.5) 51.4 32.8
Depreciation and amortisation 10.2 11.1 22.6
Loan impairment loss 75.5 8.0 29.3
Investment impairment loss 64.8 - 94.4
Recoveries of loans and advances (0.9) (2.7) (6.8)
previously written off
Loss on sale of assets - - 58.0
Interest on subordinated 45.4 45.5 91.7
liabilities and other capital
instruments
Net profit on sale of property, (7.7) (10.7) (4.3)
plant and equipment and
intangible assets
Gains less losses on sale of debt 25.2 (0.4) (3.4)
securities
Cash flows from operating 185.8 231.2 407.5
activities before changes in
operating assets and liabilities
Net (increase)/decrease in
operating assets:
Loans and advances to banks and (898.4) (1,755.4) (3,395.3)
customers
Net proceeds from sale of assets 645.9 - 3,294.8
Acquisitions of mortgage (1,070.4) (2,469.7) (4,337.9)
portfolios
Debt securities 68.2 (73.8) (119.3)
Derivative financial instruments (783.4) (481.4) (884.4)
Prepayments and accrued income (10.2) (0.8) (3.5)
Other assets (5.0) 13.5 (632.4)
Net increase/(decrease) in
operating liabilities:
Deposits by banks and customer 1,362.0 1,691.9 2,396.0
accounts
Derivative financial instruments 63.8 387.9 5.2
Debt securities in issue (1,614.7) 1,022.5 (701.5)
Other liabilities 4.2 (42.6) (35.6)
Accruals and deferred income (120.3) (59.7) 210.1
Provisions (29.1) (15.2) (35.1)
Income taxes received/(paid) 36.1 (19.2) (80.4)
Other non-cash items 99.2 341.0 (165.9)
Net cash used in operating (2,066.3) (1,229.8) (4,077.7)
activities
Cash flows from investing
activities:
Purchase of property, plant and (15.4) (15.7) (34.3)
equipment and intangible assets
Proceeds from sale of property, 11.6 13.7 14.5
plant and equipment
Net cash used in investing (3.8) (2.0) (19.8)
activities
Cash flows from financing
activities:
Purchase of own shares held to - (18.7) (18.7)
satisfy employee share plans
Purchase of own shares for - - (58.6)
cancellation
Proceeds from disposal of own 2.7 4.8 5.2
shares
Net proceeds from secured funding 1,500.0 4,182.0 6,437.7
Repayments of secured funding (808.9) (559.3) (1,374.2)
Interest paid on subordinated (47.7) (35.7) (79.7)
liabilities and other capital
instruments
Dividends paid (87.9) (84.7) (126.5)
Net cash from financing 558.2 3,488.4 4,785.2
activities
Net (decrease)/increase in cash (1,511.9) 2,256.6 687.7
and cash equivalents
Cash and cash equivalents at 4,335.3 3,647.6 3,647.6
beginning of period
Cash and cash equivalents at end 2,823.4 5,904.2 4,335.3
of period
Represented by cash and assets
with original maturity of three
months or less within:
Cash and balances at central 15.5 9.3 21.0
banks
Treasury bills 241.6 - 185.0
Loans and advances to banks 2,566.3 4,863.2 2,137.5
Debt securities - 1,031.7 1,991.8
2,823.4 5,904.2 4,335.3
Balances maintained with the Bank 178.1 186.5 188.2
of England
The Group is required to maintain balances with the Bank of England, as shown above. These balances are not included in cash and cash
equivalents for the purposes of the Cash Flow Statement.
1. Reporting entity
Bradford & Bingley plc ("the Company") is a public limited company incorporated in the UK under the Companies Act 1985. The financial
information in this Interim Financial Report consolidates the Company and its subsidiaries (including special purpose vehicles), together
referred to as "the Group". The Group's consolidated financial statements for the year ended 31 December 2007 are included in the Group's
2007 Annual Report & Accounts available on the Group's website www.bbg.co.uk.
2. Basis of preparation
The information in this document does not include all of the disclosures required by IFRS in full annual financial statements and it
should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2007 which were
prepared in accordance with IFRS as adopted by the EU. In preparing this financial information there have been no material changes to the
accounting policies previously applied by the Group in preparing, and detailed in, its Annual Report & Accounts for the year ended 31
December 2007. The Group's defined benefit pension plan had a surplus of �8.2m at 30 June 2008, but in line with the principles of IAS 19
"Employee Benefits", and having regard to the principles of IFRIC 14 "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction" this surplus has been capped at nil for the purposes of this Interim Financial Report because the Group
does not have a clear unconditional right to a refund or a reduction in contributions to the plan. The tax charge for the period has been calculated using the expected effective tax rate for the full year 2008.
This Interim Financial Report has been prepared in accordance with IAS 34 "Interim Financial Reporting".
3. Net interest income
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Net interest income 247 271 548
Average interest-earning assets 50,911 48,124 49,743
("IEA")
Financed by:
Interest-bearing liabilities 49,243 46,140 47,904
Interest-free liabilities 1,668 1,984 1,839
%
Average rates
Gross yield on IEA 6.05 5.91 5.96
Cost of interest-bearing (5.25) (4.97) (5.05)
liabilities
Interest spread 0.80 0.94 0.91
Contribution of interest-free 0.18 0.20 0.19
liabilities
Net interest margin 0.98 1.14 1.10
Average bank base rate 5.19 5.32 5.51
Average 3-month LIBOR 5.81 5.65 6.00
Average 3-year swap rate 5.36 5.81 5.81
4. Fee and commission income
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Lending related 9.4 15.5 28.7
Investment 12.0 16.0 30.8
General insurance 8.4 9.8 19.9
Other 1.1 1.1 2.3
Total 30.9 42.4 81.7
5. Administrative expenses
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
Staff related costs 62.2 61.5 121.0
Premises 10.7 10.0 20.5
Marketing 11.6 10.4 19.7
Depreciation and amortisation 10.2 11.1 23.7
Other operating costs 48.7 46.8 95.3
Ongoing 143.4 139.8 280.2
Release of surplus provision for (20.0) - -
compensation claims
Total 123.4 139.8 280.2
Compensation costs: during the period the rate of compensation claims fell and the level of provision remaining was reassessed.
Consequently �20.0m of the provision was released.
6. Taxation
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
�m
(Loss)/profit before taxation (26.7) 180.4 126.0
UK corporation tax at 28.5% (2007: 7.6 (54.1) (37.8)
30.0%)
Effects of:
Expenses not deductible for taxation (2.8) (1.7) (4.3)
Lower rate on overseas earnings 4.7 4.2 7.2
Rate change - - 0.7
Adjustments in respect of previous - 0.2 1.4
periods
Total taxation credit/(charge) for the 9.5 (51.4) (32.8)
financial period
Effective tax rate (%) 35.6 28.5 26.0
The tax credit/(charge) for the period includes an overseas tax charge of �15.2m (1H 2007: �9.2m, FY 2007: �22.1m). Deferred tax
appropriately reflects the change to the standard rate of UK corporation tax from 30% to 28% which became effective 1 April 2008. The
weighted standard rate of UK corporation tax for 2008 is 28.5%. The tax charge for the period has been calculated using the expected
effective tax rate for the full year 2008.
7. Earnings per share
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007
2007
Basic (p) (2.8) 20.4 14.9
Diluted (p) (2.8) 20.4 14.9
Earnings per share is calculated using
the following amounts of profit
attributable to equity shareholders:
(Loss)/profit for the financial period (17.2) 129.0 93.2
(�m)
Shares (m)
Weighted average number of ordinary 611.5 631.2 624.2
shares in issue
Dilutive effect of ordinary shares - 1.3 0.8
issuable under
Company share schemes
Diluted weighted average number of 611.5 632.5 625.0
ordinary shares
Shares acquired by employee share trusts, which are deducted from equity shareholders' funds, have been excluded from the calculation of
earnings per share as they are treated as if they are cancelled until such time as they vest unconditionally to the employee.
8. Dividends
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007
2007
�m
Dividends paid 87.9 84.7 126.5
A 2007 final dividend of 14.3 pence per share (2006: 13.4 pence) was paid on 2 May 2008 to shareholders on the register at the close of
business on 25 March 2008, making a total dividend in respect of 2007 of 21.0 pence per share (2006: 20.0 pence). A 2008 interim dividend
will be paid on 6 October 2008. This dividend will be in the form of new shares; each shareholder will receive a number of shares, the
number being calculated in relation to their shareholding at the close of business on 3 October 2008. The total number of shares issued will
be calculated to be worth �43.4m based on the mid-market share price at the close of business on 28 August 2008, currently equivalent to
3.0p per share. In accordance with IAS 10 "Events after the Balance Sheet Date" the interim dividend was not accrued at 30 June 2008 as it
was not a liability as at that date.
9. Wholesale assets
As at 30 June 30 June 31 December
2008 2007 2007
�m
Cash and balances at central banks 193.6 195.8 209.2
Treasury bills 241.6 - 185.0
Loans and advances to banks:
- Reverse repos 832.1 55.1 253.4
- Bank and time deposits 754.9 3,247.1 1,344.6
- Cash and other collateral 1,385.9 1,561.0 794.1
2,972.9 4,863.2 2,392.1
Debt securities:
Liquidity portfolio:
- UK Government securities 1,152.6 370.8 1,518.8
- Bank and supranational bonds 1,324.8 1,258.0 1,398.8
- Bank certificates of deposit - 1,443.2 1,223.6
- UK and European AAA MBS 1,103.6 1,233.0 1,204.3
- Other asset backed securities 221.3 242.7 257.4
3,802.3 4,547.7 5,602.9
Structured finance portfolio:
- Principal protected notes 415.2 611.6 582.0
- CDOs and CLOs 341.8 511.2 456.6
- SIVs 9.0 133.2 63.5
- Credit funds 60.4 60.8 73.7
826.4 1,316.8 1,175.8
4,628.7 5,864.5 6,778.7
Total 8,036.8 10,923.5 9,565.0
Embedded derivatives (79.2) - (49.7)
Total market value of wholesale assets 7,957.6 10,923.5 9,515.3
Structured finance portfolio net of embedded 747.2 1,316.8 1,126.1
derivatives
9. Wholesale assets (continued)
Structured finance portfolio at 30 June 2008
Total �m AAA AA A BBB CCC & Below Total
PPNs 415.2 54% 42% 4% - - 100%
Non synth CDOs 27.2 22% 44% 14% 20% - 100%
Synthetic CDOs 107.8 7% 36% 24% 24% 9% 100%
Non synth CLOs 166.5 45% 52% - 3% - 100%
Synthetic CLOs 40.3 71% - 20% 9% - 100%
SIVs 9.0 - - - - 100% 100%
Credit funds 60.4 - - 60% 40% - 100%
Total 826.4 41% 38% 11% 8% 2% 100%
Net value of investments containing embedded derivatives
At 30 June 2008
�m
Value of synthetic CDO assets 107.8
Embedded derivatives in synthetic CDOs (79.2)
Net value of synthetic CDOs 28.6
Value of synthetic CLO assets 40.3
Embedded derivatives in synthetic CLOs -
Net value of synthetic CLOs 40.3
Fair value of structured finance portfolio 826.4
Embedded derivatives (79.2)
Net value of structured finance portfolio 747.2
Embedded derivatives within synthetic CDOs and CLOs are recorded as liabilities on the Balance Sheet.
Analysis of investment by geographic region
Total �m UK Europe US Other Total
PPNs 415.2 55% 40% 4% 1% 100%
Non synth CDOs 27.2 4% 47% 47% 2% 100%
Synthetic CDOs 107.8 7% 13% 80% - 100%
Non synth CLOs 166.5 - 64% 36% - 100%
Synthetic CLOs 40.3 - 71% 29% - 100%
SIVs 9.0 19% 25% 48% 8% 100%
Credit funds 60.4 - 100% - - 100%
Total 826.4 29% 47% 23% 1% 100%
Analysis of investment by type of asset
Total Mortgage Backed Asset Backed Corporate Loans Other Total
�m Securities Securities
PPNs 415.2 - 5% 80% 15% 100%
Non synth CDOs 27.2 80% - 20% - 100%
Synthetic CDOs 107.8 71% - 29% - 100%
Non synth CLOs 166.5 - - 100% - 100%
Synthetic CLOs 40.3 - - 100% - 100%
SIVs 9.0 - 100% - - 100%
Credit funds 60.4 - - 79% 21% 100%
Total 826.4 12% 4% 75% 9% 100%
9. Wholesale assets (continued)
Structured finance portfolio at 30 June 2007
Total �m AAA AA A BBB CCC & Below Total
PPNs 611.6 31% 53% 16% - - 100%
Non synth CDOs 66.2 40% 38% 22% - - 100%
Synthetic CDOs 205.7 79% 10% 5% 6% - 100%
Non synth CLOs 175.3 52% 44% - 4% - 100%
Synthetic CLOs 64.0 74% - 18% 8% - 100%
SIVs 133.2 - - - 100% - 100%
Credit funds 60.8 - - 61% 39% - 100%
Total 1,316.8 39% 34% 13% 14% - 100%
Net value of investments containing embedded derivatives
At 30 June 2007
Value of synthetic CDO assets �m205.7
Embedded derivatives in synthetic CDOs -
Net value of synthetic CDOs 205.7
Value of synthetic CLO assets 64.0
Embedded derivatives in synthetic CLOs -
Net value of synthetic CLOs 64.0
Fair value of structured finance portfolio 1,316.8
Embedded derivatives -
Net value of structured finance portfolio 1,316.8
Embedded derivatives within synthetic CDOs and CLOs are recorded as liabilities on the Balance Sheet.
Analysis of investment by geographic region
Total �m UK Europe US Other Total
PPNs 611.6 42% 46% 3% 9% 100%
Non synth CDOs 66.2 - 19% 81% - 100%
Synthetic CDOs 205.7 8% 21% 71% - 100%
Non synth CLOs 175.3 - 60% 40% - 100%
Synthetic CLOs 64.0 - 42% 58% - 100%
SIVs 133.2 21% 18% 52% 9% 100%
Credit funds 60.8 - 100% - - 100%
Total 1,316.8 23% 42% 30% 5% 100%
Analysis of investment by type of asset
Total Mortgage Backed Asset Backed Corporate Loans Other Total
�m Securities Securities
PPNs 611.6 - 3% 51% 46% 100%
Non synth CDOs 66.2 100% - - - 100%
Synthetic CDOs 205.7 42% - 58% - 100%
Non synth CLOs 175.3 - - 100% - 100%
Synthetic CLOs 64.0 - - 100% - 100%
SIVs 133.2 - 100% - - 100%
Credit funds 60.8 - - 78% 22% 100%
Total 1,316.8 12% 12% 54% 22% 100%
9. Wholesale assets (continued)
Structured finance portfolio at 31 December 2007
Total �m AAA AA A BBB CCC & Below Total
PPNs 582.0 41% 51% 8% - - 100%
Non synth CDOs 31.2 31% 55% 14% - - 100%
Synthetic CDOs 187.2 84% 8% 2% 6% - 100%
Non synth CLOs 173.5 52% 44% - 4% - 100%
Synthetic CLOs 64.7 74% - 17% 9% - 100%
SIVs 63.5 - - - - 100% 100%
Credit funds 73.7 - 8% 60% 32% - 100%
Total 1,175.8 46% 35% 10% 4% 5% 100%
Net value of investments containing embedded derivatives
At 31 December 2007
�m
Value of synthetic CDO assets 187.2
Embedded derivatives in synthetic CDOs (47.4)
Net value of synthetic CDOs 139.8
Value of synthetic CLO assets 64.7
Embedded derivatives in synthetic CLOs (2.3)
Net value of synthetic CLOs 62.4
Fair value of structured finance portfolio 1,175.8
Embedded derivatives (49.7)
Net value of structured finance portfolio 1,126.1
Embedded derivatives within synthetic CDOs and CLOs are recorded as liabilities on the Balance Sheet.
Analysis of investment by geographic region
Total �m UK Europe US Other Total
PPNs 582.0 48% 48% 3% 1% 100%
Non synth CDOs 31.2 - 42% 58% - 100%
Synthetic CDOs 187.2 - 26% 74% - 100%
Non synth CLOs 173.5 - 62% 38% - 100%
Synthetic CLOs 64.7 - 43% 57% - 100%
SIVs 63.5 21% 19% 52% 8% 100%
Credit funds 73.7 9% 91% - - 100%
Total 1,175.8 25% 48% 26% 1% 100%
Analysis of investment by type of asset
Total Mortgage Backed Asset Backed Corporate Loans Other Total
�m Securities Securities
PPNs 582.0 - 3% 62% 35% 100%
Non synth CDOs 31.2 100% - - - 100%
Synthetic CDOs 187.2 40% - 60% - 100%
Non synth CLOs 173.5 - - 100% - 100%
Synthetic CLOs 64.7 - - 100% - 100%
SIVs 63.5 - 100% - - 100%
Credit funds 73.7 - - 74% 26% 100%
Total 1,175.8 9% 7% 65% 19% 100%
10. Lending - mortgage movements
6 months 30 June 2008 At 30 June 2008
New mortgages Net advances Balances
�m % �m �m %
Residential
Organic
Buy-to-let 2,276.6 69 1,412.7 22,363.7 68
Self-cert 598.3 18 156.8 5,644.9 17
Standard and other specialist 412.5 13 115.2 5,040.8 15
Total 3,287.4 100 1,684.7 33,049.4 100
Acquired
Buy-to-let 237.9 22 111.9 2,347.8 28
Self-cert 447.5 42 (4.4) 3,354.2 41
Standard and other specialist 385.0 36 113.8 2,537.5 31
Total 1,070.4 100 221.3 8,239.5 100
Buy-to-let 2,514.5 58 1,524.6 24,711.5 60
Self-cert 1,045.8 24 152.4 8,999.1 22
Standard and other specialist 797.5 18 229.0 7,578.3 18
Total residential 4,357.8 100 1,906.0 41,288.9 100
Residential 4,357.8 99 1,906.0 41,288.9 98
Commercial property and housing
associations 21.1 1 (103.0) 907.9 2
Total 4,378.9 100 1,803.0 42,196.8 100
6 months to 30 June 2007 At 30 June 2007
New mortgages Net advances Balances
�m % �m �m %
Residential
Organic
Buy-to-let 3,116.7 66 1,935.8 18,924.4 66
Self-cert 1,060.9 22 573.1 5,211.4 18
Standard and other specialist 553.3 12 118.1 4,693.1 16
Total 4,730.9 100 2,627.0 28,828.9 100
Acquired
Buy-to-let 497.7 20 369.7 1,587.4 23
Self-cert 841.0 34 565.5 2,817.3 42
Standard and other specialist 1,131.0 46 954.7 2,373.9 35
Total 2,469.7 100 1,889.9 6,778.6 100
Buy-to-let 3,614.4 50 2,305.5 20,511.8 58
Self-cert 1,901.9 27 1,138.6 8,028.7 23
Standard and other specialist 1,684.3 23 1,072.8 7,067.0 19
Total residential 7,200.6 100 4,516.9 35,607.5 100
Residential 7,200.6 94 4,516.9 35,607.5 88
Commercial property and housing
associations 477.9 6 (48.5) 4,955.2 12
Total 7,678.5 100 4,468.4 40,562.7 100
10. Lending - mortgage movements (continued)
12 months to 31 December 2007 At 31 December 2007
New mortgages Net advances Balances
�m % �m �m %
Residential
Organic
Buy-to-let 6,494.8 67 3,965.8 20,960.8 67
Self-cert 1,966.4 20 851.4 5,491.9 17
Standard and other specialist 1,241.4 13 423.2 4,959.6 16
Total 9,702.6 100 5,240.4 31,412.3 100
Acquired
Buy-to-let 1,216.8 28 929.8 2,172.1 27
Self-cert 1,352.4 31 763.8 3,048.2 38
Standard and other specialist 1,768.7 41 1,338.4 2,789.7 35
Total 4,337.9 100 3,032.0 8,010.0 100
Buy-to-let 7,711.6 55 4,895.6 23,132.9 59
Self-cert 3,318.8 24 1,615.2 8,540.1 22
Standard and other specialist 3,010.1 21 1,761.6 7,749.3 19
Total residential 14,040.5 100 8,272.4 39,422.3 100
Residential 14,040.5 94 8,272.4 39,422.3 97
Commercial property and
housing associations 937.8 6 (3,954.6) 1,022.2 3
Total 14,978.3 100 4,317.8 40,444.5 100
11. Loan impairment loss
On residential On commercial Total
mortgages property and housing
association loans
6 months to 30 June 2008
�m
Allowances for credit losses
against loans and advances to
customers have been made as
follows:
Opening provision at 1 January 54.8 0.1 54.9
2008
Movements during the period:
- Write-offs (28.8) - (28.8)
- Loan impairment charge 77.3 - 77.3
- Discount unwind (1.8) - (1.8)
Net movements during the 46.7 - 46.7
period
Closing provision at 30 June 101.5 0.1 101.6
2008
The Income Statement charge
comprises:
Loan impairment charge 77.3 - 77.3
Recoveries (0.9) - (0.9)
Discount unwind (1.8) - (1.8)
Total Income Statement charge 74.6 - 74.6
On residential On commercial Total
mortgages property and housing
association loans
6 months to 30 June 2007
�m
Allowances for credit losses
against loans and advances to
customers have been made as
follows:
Opening provision at 1 January 47.8 1.6 49.4
2007
Movements during the period:
- Write-offs (8.8) - (8.8)
- Loan impairment charge 9.0 (1.4) 7.6
- Discount unwind 0.4 - 0.4
Net movements during the 0.6 (1.4) (0.8)
period
Closing provision at 30 June 48.4 0.2 48.6
2007
The Income Statement charge
comprises:
Loan impairment 9.0 (1.4) 7.6
charge/(credit)
Recoveries (2.7) - (2.7)
Discount unwind 0.4 - 0.4
Total Income Statement 6.7 (1.4) 5.3
charge/(credit)
On residential On commercial Total
mortgages property and housing
association loans
12 months to 31 December 2007
�m
Allowances for credit losses
against loans and advances to
customers have been made as
follows:
Opening provision at 1 January 47.8 1.6 49.4
2007
Movements during the year:
- Write-offs (23.8) - (23.8)
- Loan impairment charge 30.4 (1.5) 28.9
- Discount unwind 0.4 - 0.4
Net movements during the year 7.0 (1.5) 5.5
Closing provision at 31 54.8 0.1 54.9
December 2007
The Income Statement charge
comprises:
Loan impairment 30.4 (1.5) 28.9
charge/(credit)
Recoveries (6.8) - (6.8)
Discount unwind 0.4 - 0.4
Total Income Statement 24.0 (1.5) 22.5
charge/(credit)
In the Balance Sheet these impairment allowances are deducted from the carrying values of the impaired assets.
12. Arrears and possessions on residential mortgages
At 30 June 30 June 31 December
2008 2007 2007
Arrears
Over 3 months
Number of cases Number 8,854 4,661 5,610
Proportion of total % 2.29 1.30 1.48
Asset value �m 1,185.8 575.1 731.2
Proportion of book % 2.87 1.62 1.85
Possessions
Number of cases Number 717 471 560
Proportion of total % 0.19 0.13 0.15
Asset value �m 122.0 79.6 97.0
Proportion of book % 0.30 0.22 0.25
Total arrears and possessions
Number of cases Number 9,571 5,132 6,170
Proportion of total % 2.48 1.43 1.63
Asset value �m 1,307.8 654.7 828.2
Proportion of book % 3.17 1.84 2.10
Residential loan impairment
balance
As % of residential balances % 0.25 0.14 0.14
As % of residential arrears and % 7.76 7.39 6.62
possessions
Analysis of accounts in 3 + months in arrears by product
At 30 June 30 June 31 December
2008 2007 2007
Arrears
Buy-to-let
Number of cases Number 3,776 1,475 1,995
Proportion of total % 1.86 0.85 1.04
Asset value �m 563.1 219.3 299.9
Proportion of book % 2.28 1.07 1.30
Self-cert
Number of cases Number 2,110 1,368 1,433
Proportion of total % 3.67 2.58 2.59
Asset value �m 346.9 210.7 233.9
Proportion of book % 3.85 2.62 2.74
Other
Number of cases Number 2,968 1,818 2,182
Proportion of total % 2.35 1.37 1.65
Asset value �m 275.8 145.1 197.3
Proportion of book % 3.64 2.05 2.55
12. Arrears and possessions on residential mortgages (continued)
Analysis of accounts in 3+ months in arrears: organic loans
At 30 June 30 June 31 December
2008 2007 2007
Arrears
Total
Number of cases Number 5,837 3,384 3,838
Proportion of total % 1.78 1.10 1.20
Asset value �m 714.4 385.3 452.0
Proportion of book % 2.16 1.34 1.46
Buy-to-let
Number of cases Number 2,954 1,277 1,621
Proportion of total % 1.61 0.81 0.93
Asset value �m 444.3 193.3 242.3
Proportion of book % 1.99 1.02 1.17
Self-cert
Number of cases Number 1,066 816 834
Proportion of total % 3.01 2.39 2.37
Asset value �m 173.8 125.7 135.4
Proportion of book % 3.08 2.41 2.48
Other
Number of cases Number 1,817 1,291 1,383
Proportion of total % 1.68 1.12 1.23
Asset value �m 96.3 66.3 74.3
Proportion of book % 1.91 1.41 1.50
Analysis of accounts in 3+ months in arrears: acquired loans
At 30 June 30 June 31 December
2008 2007 2007
Arrears
Total
Number of cases Number 3,017 1,277 1,772
Proportion of total % 5.11 2.51 3.04
Asset value �m 471.4 189.8 279.2
Proportion of book % 5.72 2.80 3.49
Buy-to-let
Number of cases Number 822 198 374
Proportion of total % 4.29 1.39 2.06
Asset value �m 118.8 26.0 57.6
Proportion of book % 5.06 1.64 2.65
Self-cert
Number of cases Number 1,044 552 599
Proportion of total % 4.79 2.92 2.98
Asset value �m 173.1 85.0 98.5
Proportion of book % 5.16 3.02 3.23
Other
Number of cases Number 1,151 527 799
Proportion of total % 6.37 2.98 3.96
Asset value �m 179.5 78.8 123.1
Proportion of book % 7.07 3.32 4.41
12. Arrears and possessions on residential mortgages (continued)
Further information regarding the credit quality of loans and advances to customers:
On residential On commercial property and Total
mortgages housing association loans
At 30 June 2008
�m
Neither past due nor impaired 38,559.0 908.0 39,467.0
Past due but not impaired
- up to 3 months 1,523.6 - 1,523.6
- 3 to 6 months 633.2 - 633.2
- 6 to 12 months 397.1 - 397.1
Individually impaired 277.5 - 277.5
41,390.4 908.0 42,298.4
Impairment allowances (101.5) (0.1) (101.6)
Loans and advances to 41,288.9 907.9 42,196.8
customers net of impairment
allowances
Impairment allowances
Individual 52.2 - 52.2
Collective 49.3 0.1 49.4
Total 101.5 0.1 101.6
On residential On commercial property and Total
mortgages housing association loans
At 30 June 2007
�m
Neither past due nor impaired 33,786.2 4,955.4 38,741.6
Past due but not impaired
- up to 3 months 1,215.1 - 1,215.1
- 3 to 6 months 350.8 - 350.8
- 6 to 12 months 185.9 - 185.9
Individually impaired 117.9 - 117.9
35,655.9 4,955.4 40,611.3
Impairment allowances (48.4) (0.2) (48.6)
Loans and advances to 35,607.5 4,955.2 40,562.7
customers net of impairment
allowances
Impairment allowances
Individual 15.0 - 15.0
Collective 33.4 0.2 33.6
Total 48.4 0.2 48.6
12. Arrears and possessions on residential mortgages (continued)
On residential On commercial property and Total
mortgages housing association loans
At 31 December 2007
�m
Neither past due nor impaired 37,212.7 1,022.3 38,235.0
Past due but not impaired
- up to 3 months 1,436.2 - 1,436.2
- 3 to 6 months 464.6 - 464.6
- 6 to 12 months 208.2 - 208.2
Individually impaired 155.4 - 155.4
39,477.1 1,022.3 40,499.4
Impairment allowances (54.8) (0.1) (54.9)
Loans and advances to 39,422.3 1,022.2 40,444.5
customers net of impairment
allowances
Impairment allowances
Individual 20.0 - 20.0
Collective 34.8 0.1 34.9
Total 54.8 0.1 54.9
No loans which would otherwise be presented as past due nor impaired are excluded from those amounts presented above as a result of
renegotiation.
In respect of loans and advances to customers, the Group holds collateral in the form of mortgages over residential properties. The fair
value of this collateral was as follows:
At 30 June 30 June 31 December
2008 2007 2007
�m
Neither past due nor impaired 64,906.3 62,454.3 70,423.3
Past due but not impaired 3,593.3 2,785.1 3,278.5
Individually impaired 322.9 150.7 195.1
68,822.5 65,390.1 73,896.9
If the collateral amount on each individual loan were capped at the amount of the balance outstanding, and any surplus of collateral
values over balances outstanding ignored, the fair value of collateral held would be as follows:
At 30 June 30 June 31 December
2008 2007 2007
�m
Neither past due nor impaired 38,538.6 32,953.7 37,212.7
Past due but not impaired 2,553.5 1,749.3 2,107.8
Individually impaired 264.1 111.4 146.5
41,356.2 34,814.4 39,467.0
The individually impaired balances above 111.1 72.4 88.1
include the following carrying amount of
assets in possession, capped at the balance
outstanding
Despite two 25bps base rate decreases since December 2007, taking base rates to 5.00%, arrears levels have continued to increase, as
predicted. The total number of cases three months or more in arrears or in possession has increased to 9,571 (31 December 2007: 6,170)
amounting to 2.48% (31 December 2007: 1.63%) of the total book.
13. Average loan to value ratios
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
Residential new lending LTV (%) 77 74 74
At 30 June 30 June 31 December
2008 2007 2007
Indexed average loan to value (LTV) % % %
Neither past due nor impaired 59.4 54.1 52.8
Past due but not impaired 71.1 62.8 64.3
Individually impaired 85.9 78.3 79.6
Total book 60.0 54.5 55.3
14. Secured funding
At 30 June 2008 Date of Securitised Secured
Transaction assets funding
�m
Securitisations
Aire Valley Finance (No.2) plc October 2000 309.0 286.8
Aire Valley Mortgages 2004-1 plc October 2004 638.3 638.3
Aire Valley Mortgages 2005-1 plc April 2005 499.0 499.0
Aire Valley Mortgages 2006-1 plc August 2006 2,430.1 2,430.1
Aire Valley Warehousing 3 Ltd December 2006 1,000.0 1,000.0
Aire Valley Mortgages 2007-1 plc May 2007 2,495.1 2,495.1
Aire Valley Mortgages 2007-2 plc November 2007 1,156.3 1,156.3
Bradford & Bingley Warehousing No.1 June 2008 1,826.0 1,000.0
LLP
10,353.8 9,505.6
Covered Bonds
Bradford & Bingley Covered Bonds LLP May 2004 2,247.1 1,342.0
Bradford & Bingley Covered Bonds LLP May 2006 3,421.5 2,043.4
Bradford & Bingley Covered Bonds LLP June 2006 383.9 229.3
Bradford & Bingley Covered Bonds LLP October 2006 565.6 337.8
Bradford & Bingley Covered Bonds LLP June 2007 2,473.1 1,477.0
Bradford & Bingley Covered Bonds LLP July 2007 246.0 146.9
Bradford & Bingley Covered Bonds LLP September 2007 837.1 500.0
Bradford & Bingley Covered Bonds LLP October 2007 702.8 419.7
Bradford & Bingley Covered Bonds LLP January 2008 837.2 500.0
11,714.3 6,996.1
Total 22,068.1 16,501.7
In June 2008 Bradford & Bingley Warehousing No.1 LLP agreed a loan facility with Barclays Bank PLC of �1,000.0m with maturity in April
2012.
The Covered Bond programme issued further loan notes during the period.
In January 2008: GBP 500.0m with bullet maturity in Oct 2012.
In May 2008: EUR 55.0m of the May 2006 issue, CHF 14.9m of the June 2006 issue, CHF 128.3m of the October 2006 issue, EUR 311.4m of the
June 2007 issue and CHF 79.8m of the July 2007 issue were repurchased and cancelled.
All of the Group's Special Purpose Vehicle entities are fully consolidated line by line into the Group's Income Statement and Balance
Sheet.
There were net redemptions of �1,617.5m of other debt securities during the period.
14. Secured funding (continued)
At 30 June 2007 Date of Securitised Secured
Transaction assets funding
�m
Securitisations
Aire Valley Finance (No.2) plc October 2000 396.4 393.9
Aire Valley Mortgages 2004-1 plc October 2004 1,275.0 1,275.0
Aire Valley Mortgages 2005-1 plc April 2005 998.5 998.5
Aire Valley Mortgages 2006-1 plc August 2006 2,430.1 2,430.1
Aire Valley Warehousing 3 Ltd December 2006 1,000.0 1,000.0
Aire Valley Mortgages 2007-1 plc May 2007 2,495.1 2,495.1
8,595.1 8,592.6
Covered Bonds
Bradford & Bingley Covered Bonds LLP May 2004 2,173.6 1,342.0
Bradford & Bingley Covered Bonds LLP May 2006 3,372.4 2,082.1
Bradford & Bingley Covered Bonds LLP June 2006 393.1 242.7
Bradford & Bingley Covered Bonds LLP October 2006 686.1 423.5
Bradford & Bingley Covered Bonds LLP June 2007 2,732.2 1,686.9
9,357.4 5,777.2
Total 17,952.5 14,369.8
At 31 December 2007 Date of Securitised Secured
Transaction assets funding
�m
Securitisations
Aire Valley Finance (No.2) plc October 2000 356.4 333.6
Aire Valley Mortgages 2004-1 plc October 2004 775.0 775.0
Aire Valley Mortgages 2005-1 plc April 2005 782.3 782.3
Aire Valley Mortgages 2006-1 plc August 2006 2,430.1 2,430.1
Aire Valley Warehousing 3 Ltd December 2006 1,000.0 1,000.0
Aire Valley Mortgages 2007-1 plc May 2007 2,495.1 2,495.1
Aire Valley Mortgages 2007-2 plc November 2007 1,156.3 1,156.3
8,995.2 8,972.4
Covered Bonds
Bradford & Bingley Covered Bonds LLP May 2004 2,129.2 1,342.0
Bradford & Bingley Covered Bonds LLP May 2006 3,303.5 2,082.1
Bradford & Bingley Covered Bonds LLP June 2006 374.5 236.0
Bradford & Bingley Covered Bonds LLP October 2006 621.6 391.8
Bradford & Bingley Covered Bonds LLP June 2007 2,676.5 1,686.9
Bradford & Bingley Covered Bonds LLP July 2007 285.1 179.7
Bradford & Bingley Covered Bonds LLP September 2007 793.4 500.0
Bradford & Bingley Covered Bonds LLP October 2007 665.9 419.7
10,849.7 6,838.2
Total 19,844.9 15,810.6
15. Reconciliation of changes in equity
6 months to 30 June 2008 Share capital Share premium Capital redemption Available-for-sale Cash flow hedge
Retained earnings Attributable
reserve reserve reserve reserve
to equity
holders
�m
At 1 January 2008 154.4 4.9 29.2 (61.9) (60.4)
1,144.6 1,210.8
Net change in - - - (80.7) -
- (80.7)
available-for-sale instruments
Net change in cash flow hedges - - - - 113.3
- 113.3
Actuarial gains on
post-retirement benefit - - - - -
3.3 3.3
obligations
Net (losses)/gains not
recognised in the Income - - - (80.7) 113.3
3.3 35.9
Statement
Loss for the financial period - - - - -
(17.2) (17.2)
Total recognised income - - - (80.7) 113.3
(13.9) 18.7
Dividends - - - - -
(87.9) (87.9)
Use of own shares on exercise
of employee options and for - - - - -
2.7 2.7
other employee share plans
Fair value of share options
taken to share option reserve - - - - -
2.8 2.8
Deficit on share option - - - - -
(2.7) (2.7)
exercises
At 30 June 2008 154.4 4.9 29.2 (142.6) 52.9
1,045.6 1,144.4
6 months to 30 June 2007 Share capital Share premium Capital redemption Available-for-sale Cash flow hedge
Retained earnings Attributable
reserve reserve reserve reserve
to equity
holders
�m
At 1 January 2007 158.6 4.9 25.0 (1.5) 20.6
1,212.3 1,419.9
Net change in - - - (3.6) -
- (3.6)
available-for-sale instruments
Net change in cash flow hedges - - - - 76.4
- 76.4
Actuarial gains on
post-retirement benefit - - - - -
48.8 48.8
obligations
Net (losses)/gains not
recognised in the Income - - - (3.6) 76.4
48.8 121.6
Statement
Profit for the financial - - - - -
129.0 129.0
period
Total recognised income - - - (3.6) 76.4
177.8 250.6
Dividends - - - - -
(84.7) (84.7)
Use of own shares on exercise
of employee options and for - - - - -
4.8 4.8
other employee share plans
Fair value of share options
taken to share option reserve - - - - -
2.6 2.6
Deficit on share option - - - - -
(4.1) (4.1)
exercises
Purchase and cancellation of - - - - -
(18.7) (18.7)
own shares
At 30 June 2007 158.6 4.9 25.0 (5.1) 97.0
1,290.0 1,570.4
15. Reconciliation of changes in equity (continued)
12 months to 31 December 2007 Share capital Share premium Capital redemption Available-for-sale Cash flow hedge
Retained earnings Attributable
reserve reserve reserve reserve
to equity
holders
�m
At 1 January 2007 158.6 4.9 25.0 (1.5) 20.6
1,212.3 1,419.9
Net change in - - - (60.4) -
- (60.4)
available-for-sale instruments
Net change in cash flow hedges - - - - (81.0)
- (81.0)
Actuarial gains on
post-retirement benefit - - - - -
37.9 37.9
obligations
Net (losses)/gains not
recognised in the Income - - - (60.4) (81.0)
37.9 (103.5)
Statement
Profit for the financial year - - - - -
93.2 93.2
Total recognised income - - - (60.4) (81.0)
131.1 (10.3)
Dividends - - - - -
(126.5) (126.5)
Use of own shares on exercise
of employee options and for - - - - -
5.2 5.2
other employee share plans
Fair value of share options
taken to share option reserve - - - - -
4.6 4.6
Deficit on share option - - - - -
(4.8) (4.8)
exercises
Purchase of own shares held to
satisfy employee share plans - - - - -
(18.7) (18.7)
Purchase and cancellation of (4.2) - 4.2 - -
(58.6) (58.6)
own shares
At 31 December 2007 154.4 4.9 29.2 (61.9) (60.4)
1,144.6 1,210.8
16. Capital structure
At 30 June 30 June 31 December
2008 2007 2007
�m
Tier 1
Share capital and reserves 1,144.4 1,570.4 1,210.8
Adjustments 49.1 (140.2) 81.3
Net pension deficit (10.0) (17.1) (4.0)
Innovative tier 1 148.9 148.9 148.8
Total tier 1 capital 1,332.4 1,562.0 1,436.9
Upper tier 2 capital 584.3 579.3 580.1
Lower tier 2 capital 622.2 647.1 647.0
Total tier 2 capital 1,206.5 1,226.4 1,227.1
Deductions (85.5) (75.4) (146.7)
Total capital 2,453.4 2,713.0 2,517.3
Tier 1 ratio (%) 7.6 8.5 8.6
Total capital ratio (%) 14.0 14.7 15.1
Innovative tier 1 and tier 2 subordinated liabilities exclude any adjustments arising from the hedging of these instruments that are
included in the Balance Sheet. Risk weighted assets are calculated according to the credit risk element of Pillar I of the Basel II
Standardised approach.
17. Staff numbers
6 months to 6 months to 12 months to
30 June 30 June 31 December
2008 2007 2007
Period end total headcount 3,091 3,129 3,228
Average headcount
Full time 2,483 2,478 2,451
Part time 700 698 691
Average full time equivalent 2,874 2,883 2,862
18. Events after the Balance Sheet date
At the Extraordinary General Meeting held on 17 July 2008 the shareholders approved the rights issue which the Directors had proposed.
The shareholders were given the right to acquire 67 new ordinary shares for every 50 held, at price of 55 pence per share. The new shares
were admitted to trading, nil paid, on 18 July. The rights issue raised approximately �400m net of expenses.
The Directors have proposed that a 2008 interim dividend be paid in shares as a scrip issue, as detailed in note 8.
19. Related party disclosures
Transactions during the period with the Group's key management personnel and other related parties were similar in nature to those
during the year ended 31 December 2007.
20. Estimates
The preparation of the Group's Interim Financial Report requires estimates, assumptions and judgements to be made which affect the
reported results and balances. Actual outcomes may differ from these estimates with a consequent impact on the results of future periods. In
the main, the significant estimates, assumptions and judgements made in preparing the Group's Interim Financial Report were the same as
those applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2007. The actuarial
assumptions used in calculating the value of post-retirement benefit assets and obligations have been updated in line with the advice of
qualified actuaries; the discount rate applied at 30 June 2008 was 6.7%, future pension increases assumed to be 3.9% and rate of salary
increase assumed to be 5.9%. The value of all debt securities carried at 30 June 2008 was derived from market prices; no internal valuation
models were used. Assumptions used in calculating provisions for loan impairment have been updated to reflect market conditons, including in respect of house price inflation, forced sale discount and
probability of borrower default. If average house prices were 10% lower than the values as at 30 June 2008 or if arrears were 50bp higher
than as at 30 June 2008 the reported impairment charge would have been increased by around �25m or �20m respectively.
21. Risks and uncertainties
The Directors are aware of the following material risks and uncertainties which may affect the Group during the remainder of 2008. There
may be other risks that are not summarised below that the Directors are not aware of or that the Directors do not consider material. The
business, financial condition or results of operations of the Group could be adversely affected by any of these risks. Further discussion of
the Group's risk management and control were provided on pages 18-21 of the Group's 2007 Annual Report and Accounts.
Risks relating to the Group's business
* The Group's mortgage loans are secured on properties; mortgage loans at 30 June 2008 totalled �42.2bn. If a borrower fails to make
scheduled payments against a mortgage loan, the Group may have to resort to taking the property into possession and selling it. The Group
may still make a loss even after selling the property. The risk of defaults by borrowers could increase as a result of a downturn in the
general economy, an increase in unemployment, increases in general market interest rates, fixed or discounted mortgage rates coming to an
end and many other factors. The risk of the Group making losses on repossessions could increase as a result of falling or static UK house
prices or a decrease in the volume of property transactions in the market. At 30 June 2008 the Group held 717 properties in possession with
a total value of �122.0m, and during the 6 months to 30 June 2008 the Group recognised a charge of �74.6m in respect of estimated losses
during the period on mortgage loans. There is also the risk that there may be increases in general incidents of financial crime, or specifically targeted incidents of crime against the Group,
including valuer and solicitor fraud in new mortgage lending.
* The Group charges interest on its mortgage loans and pays interest and dividends on the capital and other funding which it uses in
its business. Changes in market interest rates, or competition in the market, may adversely affect the interest rates which the Group is
able to charge and also affect the cost of the Group's funding, and hence affect the Group's net income and profitability. During the 6
months to 30 June 2008 the Group made an average of 0.98% margin between interest earned and interest paid.
* The Group carries investments in the Balance Sheet at their fair value. The carrying values of the investments and the Group's
reported profits could be affected by changes in values of investments, and during the 6 months to 30 June 2008 the Group recognised a
charge of �64.8m in respect of estimated impairment of investments.
* The Group is subject to regulatory supervision, company and banking legislation, tax legislation and interpretation, and other
regulations. Changes in any of these could result in changes to the Group's operations, the costs it faces, the products and services it
offers, or the value of its assets. There is also the risk that the Group may fail to comply with legislative or regulatory requirements, or
could be the subject of legal action by customers, suppliers or other parties, which could cause the Group to incur costs and reputational
damage.
* Damage to the Group's reputation could reduce demand for the Group's lending and savings products. The Group's reputation could be
damaged by adverse publicity regarding the Group's liquidity, customer service standards or other factors. The Group's customer satisfaction
score for 2007 was 93%, as measured by surveys and other methods.
* The Group's business operations rely on many internal factors including the ability to implement and maintain effective systems to
process the large number of transactions it enters into with customers, the accuracy and completeness of information about customers and
counterparties, maintaining agreements with third parties for services provided and recruiting, and retaining and developing appropriate
senior management and skilled personnel. Weaknesses in these personnel, services, systems and information could prevent the Group from
operating its business effectively and efficiently, reducing profitability or in extreme cases preventing the Group from functioning.
* Failures in the banking system, including failures of other banks or of IT infrastructures, could adversely affect the whole
banking sector, impacting the Group's ability to carry on its business.
Funding and liquidity risks
* The Group's business requires funding; this funding is used to advance mortgage loans to the Group's customers. There are two main
types of risk arising as a result: funding risk and liquidity risk.
* Funding risk is the risk that the Group may not have sufficient funding to continue or to grow its business. Lack of sufficient
funding could arise if net cash inflows from retail deposits or wholesale funding markets were less than anticipated, or redemptions of
mortgages were slower than anticipated; any of these could leave the Group with insufficient funding to support the desired level of
mortgage lending. The level of retail deposits flows is dependent on interest rates offered and customer sentiment. Wholesale funding could
become less accessible due to market conditions or to changes in the Group's credit ratings, amongst other factors. As with all mortgage
lenders, the majority of the Group's mortgage loans are long term, and although a large proportion of borrowers tend to repay their loans
before the contractual maturity date they are not obliged to do so; loans may have contractual lives of as long as 25 years. At 30 June 2008
the Group had retail deposits of �22.2bn and wholesale funding of �26.6bn.
* Liquidity risk is the risk that the Group may need to make payments out but is unable to access sufficient cash at the right time
to do so. To mitigate liquidity risk the Group has a policy of carrying high quality investments which are readily convertible into cash, at
a level sufficient to cover several months' cash requirements during a period of severe stress.
*
Responsibility Statement of the Directors in Respect of the Interim Financial Report
We confirm that to the best of our knowledge:
* the condensed set of Financial Statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by
the EU.
the interim financial report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of Financial Statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months
of the current financial year and that have materially affected the financial position or performance of the entity during that period; and
any changes in the related party transactions described in the last Annual Report that could do so.
The Directors who served during the 6 months to 30 June 2008 were as follows:
Rod Kent
Steven Crawshaw (resigned from the Board 31 May 2008)
Nicholas Cosh
Stephen Webster
Ian Cheshire
Robert Dickie (resigned 21 April 2008)
Louise Patten
Chris Willford
Roger Hattam
Mark Stevens
Michael Buckley
Signed on behalf of the Directors by
Rod Kent
Chairman
Chris Willford
Group Finance Director
28 August 2008
Shareholder Information
Shareholders' interests in shares at 30 June 2008*
Number of Number of
Size of holding shareholders % shares %
1 - 250 831,084 88.99 205,875,256 33.33
251 - 500 78,117 8.36 31,322,880 5.07
501 - 1,000 13,993 1.50 10,243,613 1.66
1,001 - 5,000 9,023 0.97 18,778,954 3.04
5,001 - 10,000 823 0.10 6,007,635 0.97
10,001 - 100,000 596 0.06 16,734,541 2.71
100,001 - 200,000 71 0.01 10,069,366 1.63
200,001 - 500,000 70 0.01 23,579,466 3.82
500,001 - 1,000,000 42 0.00 28,959,415 4.69
1,000,001 - 5,000,000 41 0.00 85,635,226 13.86
5,000,001 and over 22 0.00 180,468,182 29.22
Total 933,882 100 617,674,534 100
*The interests above include holdings in the Bradford & Bingley Nominee Account, certificated and uncertificated holdings.
At the close of business on 30 June 2008 the share price of Bradford & Bingley plc was 64.50p and the market capitalisation was �0.4bn.
A presentation of the Bradford & Bingley's 2008 Interim Results for investors and analysts will be given at 0930 hours on 29 August
which will be broadcast live via the following web address:
www.bbg.co.uk
Contacts
Media Relations:
Tony McGarahan Nickie Aiken
Tel: +44 20 7067 5511 Tel: +44 20
Mobile: 07501 500164 7067 5645
Email: tony.mcgarahan@bbg.co.uk Email:
nickie.aiken@bbg.
co.uk
Matthew Newton, Finsbury
Tel: +44 20 7251 3801
Email: matthew.newton@finsbury.com
Investor Relations:
Katherine Conway Neil Vanham
Tel: +44 1274 554928 Tel: +44 1274
Email: katherine.conway@bbg.co.uk 806341
Email:
neil.vanham@bbg.co.
uk
This information is provided by RNS
The company news service from the London Stock Exchange
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