GIVEN THE turmoil of the past week, it is small wonder the UK financial regulator is dusting off contingency plans and looking for a potential white knight for Bradford Bingley (BB).

The UK's biggest buy-to-let lender has been a headache for the UK financial services authority since May, when BB issued a shock profit warning, lost its chief executive, and its poorly supported £400 million (€502 million) rights issue was restructured twice.

The uncertainty led to savers withdrawing £800 million in June and July. And last week ratings agency Moody's downgraded BB's credit to one notch above junk status. BB now has one of the lowest credit ratings of any bank and 85 per cent of its loan book is in riskier areas such as buy-to-let mortgages and self-certified loans. Trade buyers are thin on the ground, partly because they are involved in other deals or have pledged to shrink their own balance sheets.

BB is not yet in the position where it needs a white knight. It is strongly capitalised with a core equity tier-one ratio of 9.1 per cent - one of the highest in the sector.

Its wholesale funding is solid. It is reducing its mortgage loan book and taking in retail deposits.

A need for contingency action would only be triggered by further market turmoil or if BB were downgraded to junk status.

If no buyers come forward, BB could run itself down, shrink its loan book and raise deposits. Effectively, it is already doing this. The other extreme would be for BB to close to new business, though this model - relatively common in insurance - is impractical in banking. Another possibility would be for the UK banks that own one-fifth of BB to make it private and carve up the assets. - ( Financial Times service)