SANTANDER, the Spanish bank which owns Abbey and has agreed to buy Alliance & Leicester, is to take over Bradford & Bingley's savings and branch business - which has £20bn in deposits and 2.7m customers - for £612m.

The struggling mortgage lender is to be nationalised, the government confirmed today.

The break-up marks a dramatic end to a business which can trace its roots back more than 150 years.

The Financial Services Authority decided on Saturday morning that B&B was not strong enough to continue as a deposit-taking business after financial turmoil undermined confidence in the bank.

"The government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers," the Treasury said.

The combined business of Abbey, Alliance & Leicester and B&B will have 1,286 branches across the UK, giving Santander a 10 per cent share of the retail savings market.

The Financial Services Compensation Scheme has paid out £14bn - as a loan funded by the Bank of England - to allow B&B's retail deposits to be transferred to Abbey, with a further £4bn to be paid by the Treasury to cover deposits not protected by the scheme. B&B's shares have been cancelled, with compensation to be paid in `due course', the government said.

Chancellor Alistair Darling sai today: "We had to stabilise the situation in order to protect the banking system as a whole."



B&B has been squeezed by the credit crunch and the housing market slowdown casting doubt over its main buy-to-let business. It also taken an £18m hit from organised fraudsters hitting the buy-to-let sector by gaining bigger mortgages than properties are worth.

Banking shares were among stocks under pressure in London early today, as the Footsie returned below the 5000 mark.

Royal Bank of Scotland was the biggest faller, after three European governments agreed a £8.9bn bail-out package for financial giant Fortis. The cash injection included a demand that Fortis resell the share of ABN Amro it bought with RBS a year ago.

Fortis, the UK's third largest private care insurer, paid £19bn for its holding.