Another Day, Another Bail-out

The government was this morning expected to nationalize buy-to-let lender Bradford & Bingley, as the global credit crisis deepened with the giant European banking group Fortis also being partially taken into public hands late last night.

But even as governments stepped into rescue the two institutions there were hopes that an apparent agreement by the US Congress for a $700bn bail-out for Wall Street would draw a line under the deepest financial crisis since the Depression.

After a weekend of frenetic activity in London and Washington, chancellor Alistair Darling last night convinced Spanish bank Santander to buy B&B's 200 branches and £22bn of savings, but he will now take £41bn of mortgages into state hands. Santander will have more than 1,200 UK branches, as it owns Abbey and is taking over Alliance & Leicester.

In the US, treasury secretary Henry Paulson declared " I think we're there", after horse-trading by the Bush administration finally removed opposition by both Democrats and Republicans for the taxpayer to take "toxic" investments owned by banks. Both presidential candidates, John McCain and Barack Obama, said they supported the package, toughened up with help for homeowners facing foreclosure and curbs on executive pay.

The US treasury would get an initial $350bn to buy mortgage-backed securities, and sell them later for the best possible prices. Last night, there were signs the House of Representatives might vote today, with the Senate later in the week.

The crisis spread to Belgium where Fortis, its biggest private employer, became the first big European casualty of the credit crunch. Last night a deal was reached between EU and national banking officials and Belgian, Dutch and Luxembourg ministers; the three governments will pour €11.2bn into the bank.

In London, sources said the government was not preparing any UK "Paulson plan", although Darling is taking on £41bn of B&B mortgages as well as £100bn of Northern Rock mortgages. While the outline of a B&B deal was done by lunchtime, talks went on last night to try to minimize risk to the taxpayer amid fears that billions could be added to Britain's worsening national debt. An announcement will be made before the London stockmarket opens at 8am today, after a weekend trying to avoid the confusion of Northern Rock, which took five months to nationalize.

Central banks were last night ready to inject liquidity into financial markets at the start of a make-or-break week for banking. Fears of fresh casualties last week sent interbank rates, the borrowing costs banks charge each other, soaring, and left Darling mounting the second emergency operation for a UK bank in a fortnight after HBOS was taken over by Lloyds TSB.

The Treasury realized on Friday that B&B had no independent future and tried to persuade a handful of major banks to make a full takeover. None would. Bidders were last night asked to tender to process the mortgages taken into state hands. Treasury chief secretary Yvette Cooper admitted the stability of the entire banking system was at stake. She told the BBC: "We've been very clear the priority is to make sure that depositors, that ordinary savers, will be properly protected, but also that we can support the stability of the banking system as a whole."

David Cameron last night opposed nationalization of B&B, saying it was wrong "to throw the whole thing on to the taxpayer", and proposed alternative methods to rescue ailing banks as well as powers to control asset-lending ratios of individual banks to avoid failure.

Shadow chancellor George Osborne will use his party conference today to accuse Gordon Brown of presiding over 10 years of debt: "We racked up more than a trillion pounds of mortgages and credit card bills and households debts, and the government never stopped to think ... Now the credit has dried up, the engines of the economy have stalled, the party is over."

B&B's shares will be suspended at 20p and its shareholders left with nothing. This may anger big City institutions and 850,000 individuals with shares after demutualisation eight years ago.