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LONDON, Sept 26 (Reuters) - Bradford & Bingley shares touched newlows for the second day running on Friday, and the cost of insuringagainst a default on its debt rose, as concerns about its abilityto finance its lending persisted.
By 1428 GMT B&B shares were down 14.1 percent at 18.25 pence,having earlier sunk to 16.5, their lowest since the former mutualfloated on the stock market in December 2000.
'B&B's problem is the funding gap, and then the actual balancesheet isn't very high quality,' said Magnus Mathewson, bankinganalyst at stockbroker Hichens, Harrison.
A spokesman for B&B said the bank was one of the best capitalisedin the UK, but declined further comment.
Credit default swaps (CDS) on five-year senior B&B debt were bid at1,500 basis points but with few trades, a trader said.
That means it would cost 1.5 million euros a year to buy protectionagainst the default of 10 million euros of B&B debt.
On Thursday alone the five-year CDS had widened by about 340 basispoints to 1,339 basis points, according to Markit data.
B&B is heavily dependent for its funding on wholesale borrowing,which has soared in cost as risk-averse banks opt to hoard theircash in the wake of the credit crunch.
The lender, which specialises in buy-to-let and self-certificationmortgages, has also been hit by a sharp rise in lending arrears asa result of the downturn in the UK housing market.
'Self certification and buy-to-let mortgages are relatively new,and no one really knows how they're going to behave in a downturn,'Mathewson said.
B&B has a loan-to-deposit ratio of 167 percent, meaning that nearlyhalf its loan book is funded through increasingly expensivewholesale borrowing, he added.
In June B&B raised 400 million pounds in an emergency rights issuethat had to be overhauled twice, first after a profit warning andthen because of a credit rating downgrade.
An industry source told Reuters that the Financial ServicesAuthority had sounded out potential buyers of B&B, but none of thebanks contacted would agree to take it over.
The FSA declined to comment, while the B&B spokesman said thecompany did not comment on 'market rumour and speculation'.
B&B is the last of a group of former mutual lenders -- previouslyowned by their savers and borrowers -- that floated in the 1990s toremain independent.
Northern Rock was nationalised in January after the credit crunchforced it to seek emergency funding from the Bank of England.Alliance & Leicester is being bought by Spain's Santander, whichalso bought Abbey National in 2004.
Halifax, which merged with Bank of Scotland to create HBOS<HBOS.L>, is now being bought by Lloyds TSB.
On Thursday, B&B sold its remaining impaired mortgage assets, andshed 370 jobs as part of a cost-cutting drive which Chief ExecutiveRichard Pym said would make the bank 'fit for purpose goingforward.'
(Additional reporting by Steve Slater and Jane Baird in London;editing by Alexander Smith) Keywords: BRADFORD&BINGLEY/
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