Alliance & Leicester forced to calm fears

Shares in banks have fallen again and Alliance & Leicester (A&L) has been forced to allay fears that it is heading down the same road as crisis-torn Northern Rock. The sub-prime mortgage crisis in the US is surrounding the entire UK financial sector.

There have been worries that the big banks have invested in mortgage-backed securities that they will need to write down and smaller firms like A&L may struggle to secure finance.

There is a lot of negativity even within the banks themselves with insiders predicting the worst is not over yet.

A spokesman for A&L denied that it required emergency cash and said it does not routinely comment on rumours concerning bodies such as the Bank of England. However, the bank highlighted that each week over the last few months, the bank has successfully raised the funds it needs.

In addition, yesterday the bank was buying back its own shares in the market which demonstrates it has not run out of cash.

Investors are prepared for disappointing quarterly trading updates over the next few weeks. Peter Toeman, HSBC analyst, has downgraded 4 British banks including Barclays and reduced its price target on Royal Bank of Scotland.

The most exposed banks are Barclays and Royal Bank of Scotland because they have big trading and investment arms, which invest in American securities. HSBC is also being directly affected because it owns mortgage businesses in the US.

Shares in Alliance & Leicester fell 29p to 701½p.

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