Alliance & Leicester reports 30% fall in profits

Britain’s seventh-largest bank, Alliance & Leicester, reported a 30% drop in profit last year after being hit by a £185 million write-down on its investments in the credit market.

Following the news, shares in the bank plummeted 50p to 478p - their lowest level since they listed on the stock market in April 1997. The mortgage lender warned 2008 would be challenging.

The ongoing write-downs of its asset-backed securities, lower margins and a pessimistic outlook for the mortgage market this year caused investors to panic. Broker Cazenove has slashed the bank’s 2008 earnings forecast by 26%.

Chris Rhodes, A&L’s Finance Director and acting chief executive, said the trading outlook for financial services will be challenging in 2008 and we will maintain the prudent approach to lending which has led to our customer lending asset quality being better than the industry average.

We will slow down our mortgage lending during this year. We will maintain our current strategy on doing only high-quality business with no self-certification, no sub-prime, very little buy-to-let and not lending any more than 90% of loan to value. We will not be out there behaving aggressively, added Mr Rhodes.

Last year, shares in the bank fell 43% following the Northern Rock crisis. Many believed the former building society would follow in the footsteps of the crisis-torn bank as out of all the mortgage banks, A&L was seen by analysts as the most similar to Northern Rock.

Mr Rhodes said the bank has now secured funding for its maturing wholesale funds and paper into the first quarter of 2009. He also wants to increase the level of funding financed by savers, which was 56% in 2007.

Last year, shares in A&L peaked at 1197p following takeover speculation. Earlier this year Spanish bank Santander, who took over Abbey National in November 2004, was believed to be in negotiations to buy Alliance & Leicester. However, Santander has since confirmed that it has no interest in A&L.

The bank was formed in 1997 by the flotation of the former Alliance & Leicester Building Society on the London Stock Exchange.

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