As banking woes spread, European governments mount costly rescues

The British government is nationalizing a big, troubled mortgage lender, Bradford & Bingley, taking over the bank's 50 billion pound ($94 billion Cdn) mortgage and loan books as turmoil from the U.S. credit crisis spread across Europe.

The move, confirmed Monday by the British Treasury, came hours after Dutch-Belgian banking giant Fortis NV was partially nationalized with an 11.2 billion euros ($21 billion) rescue by the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week.

'We are standing behind the system to stabilize it because to let Bradford & Bingley go down would have destabilized the entire system.' —British Treasury chief Alistair Darling

Germany's second-biggest commercial property lender, Hypo Real Estate Holding AG, said Monday it had secured a multibillion euro line of credit from several banks, as the financial turmoil in the United States spread further in Europe.

British Treasury chief Alistair Darling said on BBC radio that the move is intended to preserve the country's financial stability.

"We are standing behind the system to stabilize it because to let Bradford & Bingley go down would have destabilized the entire system, especially given what's going on in the world at the moment," Darling said.

The government has also paid out 18 billion pounds ($34 billion) to facilitate the sale of Bradford & Bingley's savings business, including its entire retail branch network, to Spain's Banco Santander. Santander, the second-largest bank in Europe, said it will be paying 612 million pounds ($2 billion) for Bradford & Bingley's 197 branches and 20 billion pounds of deposits.

Bradford & Bingley is the third major British bank to run into trouble since the credit crunch began just over a year ago. Northern Rock PLC was nationalized in February, and HBOS PLC sold itself to Lloyds TSB Group PLC on Sept. 18, to stem a sharply falling share price.

The government is likely to take the bank's toxic loans and either fold them into Northern Rock, another mortgage lender nationalized by the British government in February, or hire Santander to administrate them via its British banking teams of Abbey National and Alliance & Leicester, said banking analysts.

Bradford & Bingley was particularly vulnerable to the credit crunch because it specializes in what are called buy-to-let mortgages.

Rising mortgage rates mean that many investors who took out loans to buy properties for rental income are no longer able to cover their mortgages repayments with the rent they receive. Many are defaulting on the loans, especially the 17 per cent of Bradford & Bingley borrowers whose incomes had not been verified by the bank.