Is A&L following in Northern Rock’s footsteps?


Alliance & Leicester shares have plunged by 33% and many fear that it could follow Northern Rock into crisis. The UK’s seventh largest bank, noted heavy losses yesterday and its share price declined significantly in afternoon trading to close down 286p at 587p.

A spokesperson for Alliance & Leicester remarked that their share price had been driven by the events in the retail banking sector – other banks have also been affected. The decline in share price has nothing to do with profitability – it is just the result of what is happening with Northern Rock.

It is thought that Alliance & Leicester was exposed to similar problems as those that led Northern Rock to obtain emergency funding from the Bank of England last week. Alliance & Leicester has around a 4% share of the UK mortgage market and depends heavily on the money markets to fund its home loans albeit not to the same degree as Northern Rock.

Several other banks have also been affected from the sell off of financial stocks following the Northern Rock crisis. Bradford & Bingley also noted a decline in its value as shares fell 50¾p to 279p. Furthermore, HBOS experienced a 5% fall in its value as shares fell 47p to 813p and finally Barclays saw a 2.5% decline in value as shares fell 15p to 581p.

Merrill Lynch, the broker, downgraded its recommendation on Alliance & Leicester to ‘sell’ from ‘neutral’ yesterday, due to the fact that a takeover is doubtful.

Alliance & Leicester was formed in 1997 by the flotation of the former Alliance & Leicester Building Society on the London Stock Exchange. It is listed on the FTSE 100 and its headquarters are in Carlton Park, a business park in Narborough.

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