LONDON, ENGLAND - BRITAIN will nationalise troubled mortgage lender Bradford & Bingley, the BBC reported on Saturday, but the government said discussions on the bank's future were still going on.

It would be the second British bank to be nationalised this year after Britain, buffeted by the global financial crisis, was forced to take Northern Rock into public ownership in February.

The credit crunch, sparked by losses on poor-quality US home loans, has claimed a growing number of high-profile banking victims around the world.

The BBC said the decision to nationalise Bradford & Bingley, using legislation put through to deal with the Northern Rock crisis, would be announced on Sunday evening or early Monday.

Bradford & Bingley's network of about 200 branches would be sold to one or more commercial banks, the BBC said.

The government said talks on B&B were still under way. 'The discussions are still going on. A further statement is expected before markets open on Monday,' a Treasury spokesman said.

B&B declined comment.

B&B shares tumbled to a record low on Friday and the cost of insuring its debt jumped, prompting regulators to step up efforts to find potential white knights for the bank, hit by the credit crunch and Britain's sliding housing market.

The financial crisis and weakening economy have heaped pressure on British Prime Minister Gordon Brown, whose party lags the opposition Conservatives in opinion polls and whose leadership has been questioned by some in his own party.

His government had to broker a rescue takeover this month when the country's biggest mortgage lender, HBOS, looked as if it might become another credit crunch victim.

The Treasury, the Financial Services Authority and the Bank of England were locked in talks on Bradford & Bingley over the weekend, officials said.

Santander in running
Spanish bank Santander emerged on Saturday as a leading candidate to buy parts of Bradford & Bingley, sources familiar with the talks said.

A banking source said the Spanish bank was talking to the government and regulators about possibly taking over Bradford & Bingley's deposits and branch network.

Santander had no comment.

Under that scenario, B&B's £40 billion (S$105 billion) mortgage portfolio would be nationalised.

No major bank is keen to take on B&B's lending book at a time of weakening house prices, industry sources say.

Santander, which already owns Abbey, said in July it was buying another British lender, Alliance & Leicester, for £1.3 billion.

Other possible buyers for B&B's branch network included HSBC and Barclays, the BBC reported.

A person familiar with the talks said the government's preferred option was to find a private sector buyer for B&B.

'Within that Santander is the lead option on account that it has been interested before and knows the business. But it is not massively enthusiastic right now,' the source said.

Another option might be to get a consortium to take over Bradford & Bingley, the source said.

Failing that, banks might still be interested in the best parts of B&B's business - about &pound20 billion worth - and the government could take the rest, possibly merging them with already nationalised Northern Rock, the source said.

Another option was all-out nationalisation followed by an immediate sale of good parts of the business, the source added.

Britain's top five banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS - and Santander already own about 30 per cent of B&B between them after they stepped in to help save a rights issue that flopped in June.