Takeover rumours spark B&B share surge

Shares in Bradford & Bingley surged more than 5% on a report that HSBC, Britain's biggest bank is considering a takeover bid for the mortgage bank.

A report in the Daily Mail renewed takeover speculation for the former building society that floated in 2000. A profit warning last month amid a slowdown in the housing market sparked the latest round of takeover talk over B&B - believed to be small enough for UK banks to buy without infringing competition rules.

The Mail said that HSBC could offer as much as 390p for each B&B share. In morning trading, B&B was up 5% at 326p, but neither would comment on what they described as "rumour and speculation".

B&B surprised the City last month by saying that pre-tax profits in the first half of the year would fall below the ?135m it made during the corresponding period in 2002.

The lending business was doing well, but its estate agents and financial advisers were suffering from a downturn in the housing market and nervousness over the stock market.

Since its flotation three years ago, Christopher Rodrigues, chief executive, has broadened B&B's business from mortgage lending into lending and distributing a broad range of financial products.

But last month's profit warning has raised doubts about his strategy. The chief concern is that the distribution business, which sells its own and third party products and is key to growth, is only making modest progress.

B&B does have a strong position in the mortgage broking market through Charcol, which it bought for ?100m three years ago. But its position is under threat: planned changes to the regulation of the sales process of financial products will allow rivals to sell products from a range of companies.

HSBC, which recently acquired Household, a US lender that focuses on poorer families, would strengthen its presence in the mortgage market if it acquired B&B. It could also use the branches to sell Household loans. The Mail says HSBC, which has looked at B&B in the past may now be ready to move.