Bradford & Bingley
Bradford & Bingley

Who is the more stupid? Bradford & Bingley's management which poured a bucket load of write-offs on an unsuspecting market yesterday, or the City analysts who failed to see the nasty stuff coming? A fall in the share price of 23% suggests somebody read the plot the wrong way.

On day one, B&B looks the guilty party. Only a couple of months ago, it was downplaying its exposure to structured investment vehicles (SIVs), collateralised debt obligations (CDOs), and the other troublesome financial instruments. The stance also looked believable. B&B is meant to be a conservative institution that has never entirely forgotten its roots in the building society movement. It was possible that it might have escaped lightly.

But one-off charges totalling £226m are anything but light. Some £94m relates to write-downs on SIVs and CDOs, and almost £50m to "synthetic CDOs." B&B calls this "our small share of a big global issue," which must

be taken as implying that other UK banks will also soon lift the lid on their own horrors.

That is why, for now, we should probably reserve judgment. We don't know what the rest of the banking reporting season will bring. B&B's experience is worrying.

The consolation is that, at a trading level, B&B did well. Arrears rose by 42% but, at 1.6% of the loan book, the warning light is not yet flashing red. B&B's funding position is also reasonably solid, even if it expects its interest margin to be squeezed again this year. The management was sufficiently confident to lift the dividend by 5%.

So why are the shares now yielding an eye-popping 11%? Yes, there is a worry about B&B's exposure to buy-to-let mortgages, but the market is essentially questioning the credibility of the management. Is that fair? The answer is the same: let's see if B&B is any worse than the other banks.

Unsure King is right Mervyn King's central message was mercifully clear yesterday: there is scope for one or two quarter-point cuts in interest rates this year, but the threat of inflation is so great that we shouldn't bank on much more. In that regard, the governor of the Bank of England was merely repeating his recent speeches.

But there was a new - and important - element: the risk of a "deeper and more persistent" slowdown is now greater than at the time of last November's report. Indeed, when pushed a bit, the governor almost spelled it out. The Bank's central projection for growth is "not inconsistent" with recession later this year.

There is, as King said, a world of difference between a deep recession lasting several quarters and a shallow affair that is over in a matter of months. Even so, the Bank's expectations for growth have deteriorated significantly in the space of three months.

If the next three months are like the last, the Bank may soon find itself signalling that stronger medicine is required. The markets think that is still a good bet: the futures are pricing in about 75 basis points of cuts this year. The difficulty for the Bank is that it risks looking as if it was asleep at the wheel if the economy does fall off a cliff. It would find itself in the same position as the US Federal Reserve, which has been firing off rate cuts as if from a machine gun.

We commentators have a different problem: it is hard at this point to say the Bank has done anything wrong. Inflation is clearly still a threat, the housing market may be slowing but it hasn't collapsed and GDP growth is reasonable.

So, while it is mundane for King to say there is "greater uncertainty than ever before," he is also being accurate. No wonder he compared his reappointment to a return to Colditz.

Point scoring Rio

Our profits for 2007 were up, unlike yours. Our growth in production until 2015 will average 8%, twice the rate the market expects of you. We're so confident that we are lifting the dividend by 31% and can pledge 20% rises for each of the next two years.

Rio Tinto was in a mood to score points over BHP Billiton yesterday - which was perfectly proper since it has some strong arguments. The contrast in production forecasts is striking. The gap between 4% and 8% doesn't sound much, but it becomes enormous when compounded over seven years.

The sub-text of Rio chief executive Tom Albanese's message to his shareholders is clear: even if you think a deal with BHP is inevitable one day, why not do it in a couple of years' time and negotiate from strength? It's a fair point.