Alliance shares fall in crisis

May 14 2008 by Alistair Houghton, Liverpool Daily Post

SHARES in Alliance & Leicester fell sharply yesterday as the company revealed almost £400m of write-downs linked to the credit crunch.

The bank, which has a major business banking operation at Bootle, offered reassuring comments on trading, saying it was funded into the second quarter of 2009.

But the figure on write-downs was bigger than expected by City investors and the FTSE-100 company’s shares fell by as much as 11% at one point during stockmarket trading yesterday. The share price closed down 10% at 459.65p.

A&L, which employs more than 2,000 people at its commercial banking arm in Bootle, said operating profits without the write-downs would have been flat for the first four months of the year.

Business has slowed in line with the tougher market conditions, as mortgage balances for the first four months of the year were down 4% to £41.2bn.

Chief executive David Bennett said: “Alliance & Leicester has made good progress during the first four months of 2008.

“Core operating profit excluding Treasury was similar to the same period in 2007, although volatility in the markets has led to a further reduction in the value of certain treasury assets.

“Our funding position is also strong, with medium term funds secured into the second quarter of 2009, and we continue to have a strong capital base.”

In February, the bank reported core operating profits of £417m for 2007, down from £585m in 2006. Pre-tax profits dropped £170m to £399m.

It also warned that soaring funding costs would leave 2008 earnings lower than last year as the crisis in credit markets looked set to cost it an extra £150m a year in securing funds for new business.

Amid the credit turmoil and collapse of America’s sub-prime mortgage market, the company wiped £185m off the value of its investments – more than three times the £55m it had estimated in November.

It said yesterday the figure for the first four months stood at £192m, relating to write-downs on struct- ured investment vehicles and collateralised debt obligations. A further £199m hit, accounting for fair value changes to reserves, will not impact on the bank’s profits.

TRADING GOSSIP: P16

alistairhoughton