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Alliance and Leicester See Profits Tumble
(20-02-08) - The Alliance and Leicester bank announced a 30% fall in profits this morning, prompted by a £185 million writedown on its investments in the credit market.
Britain’s seventh largest bank saw profits jettison from £569 million in 2006 to just £399 million in 2007, a fall of almost a third. In a statement last month, the bank stated that it would take a £185 million charge on its investments in structured investment vehicles and collateralised debt obligations. The writedown was more than three times higher than an estimate given late last year of £55 million.
Chris Rhodes, the Alliance & Leicester(www.alliance-leicester.co.uk) finance director, was quick to allay customers’ fears by reassuring them the bank had ‘obtained wholesale funding to cover its business into the first quarter of 2009’. Mr. Rhodes went on to say 2008 is set to be a ‘challenging’ year, but he ‘expected total dividends this year would be maintained at the 2007 level’.
Customer deposits funded 56% of the loans that Alliance and Leicester sold in 2007, and the bank said it expected this proportion to increase in 2008.
This activity is taking place against a backdrop of the government’s four point plan that intends to turn Northern Rock(www.northernrock.co.uk) around in less than six months.
Chris Eagle, Commercial Manager at CreditChoices, urges Alliance and Leicester customers to not hit the panic button:
‘These types of returns were largely expected, and it was only a strategic money movement by Barclays that saved them from a similar fate. Reduced profits are a reality that banks will have to get used to, at least until the credit crunch loosens its grip on the UK economy. One thing is for sure, banks will adapt.’
