The precarious financial state of Alliance & Leicester that led to it submitting to a cut-price takeover by Spain's Santander was revealed in financial results yesterday showing an almost complete wipe-out of its profits.
The precarious financial state of Alliance & Leicester that led to it submitting to a cut-price takeover by Spain's Santander was revealed in financial results yesterday showing an almost complete wipe-out of its profits.
Alliance & Leicester made £1.8m pre-tax profit in the first six months of the year, down from £290.1m in the same period last year.
The board of Britain's seventh-largest bank surprised investors last month by agreeing to a £1.3bn takeover by Spain's Santander, which already owns Abbey, a deal that is due to be completed in October.
Alliance & Leicester chief executive David Bennett retained a positive view of the company's figures: "It was a robust performance by our customer-facing businesses.
"We continue to deliver good products to our customers and continue to grow our franchise," he added.
The damage was directly related to the credit crunch, with plummeting values of investments linked to the credit markets and increased funding costs.
The company saw funding costs rise by £70m, most of it down to fixing more longer-term funding that will see it into the third quarter of 2009, although it also took a £19m hit from doubling its cash levels to £6bn.
It also saw £209m wiped off the value of investments linked to the credit crunch.
The bank saw its deposits from personal customers rise by £800m to £24.1bn as the company opened more current and savings accounts.
Its mortgage book fell by £2.1bn from the beginning of the year to £40.6bn, in line with its strategy to cut 10% of its mortgage book as the company seeks to reduce its reliance on funding from the money markets.
However, Bennett noted that "customers are staying with us longer" as the availability of mortgages in the market reduces. Other personal loans reduced by £100m to £3.6bn.
The bank continued to make loans to corporate customers, with commercial lending balances up £600m to £9bn over the first six months of the year. However, deposits held by corporate customers fell by £1.3bn to £6.2bn.
Figures from the bank confirmed evidence from the wider sector that customers are finding it increasingly hard to service their loans. Alliance & Leicester took an impairment loss charge of £54m, up £4m on the same period last year.
Within this the mortgage impairment charge was £7m compared to zero last year. Some £3m of this relates to mortgage loans where the bank thinks solicitors or financial advisers may have acted fraudulently or negligently and £4m is to cover the impact of house price falls.
Margins at the retail bank crept up to 1.36% from 1.3% at the end of last year as it upped mortgage rates by an extra 100 basis points over base rates, although this was offset to some extent by the higher interest rates it had to pay for deposits.
Bennett maintained yesterday that there have not yet been discussion between Alliance & Leicester and Santander on the integration of the business, including job losses. Abbey and Alliance & Leicester have a total of 950 branches nationwide.
On the morale of staff following the deal, he said: "They may have been shocked and surprised but they have got back to business."
A year ago, Alliance & Leicester shares were worth more than 1000p. Yesterday, they nudged up 0.25p to 340.75p.
