A&L profits from lending share boost

ALLIANCE & LEICESTER has bucked a gloomy trend among converted building societies by boosting its share of the mortgage market since becoming a bank.

The bank's share of net lending rose by nearly a quarter from 4.5 to 5.5 per cent in the first half of the year. The building society became a bank in April 1997.

The rise was in stark contrast to the Woolwich and Halifax, both suffering the effects of borrowers redeeming mortgages after conversion. Both have seen their shares of the market shrink to around a third of their normal size.

A&L's success in boosting market share appears to support a theory that smaller building societies have had greater success in converting to banks than their larger rivals.

Richard Pym, the finance director, said: "It is much harder for Halifax and Abbey National to defend a 20 or 15 per cent share than it is for us. It is easier to attack from a lower number.

"What we did was to get ourselves in order. We organised our sales effort much better and were more consistent in our approach to the market. It was a better sales effort."

A&L followed a similar pattern to Northern Rock, another of the smaller converted societies, in capturing business from the bigger lenders.

The bank moved heavily into fixed-interest mortgages, once a small fraction of its loan portfolio. In the first half of 1998, fixed-interest loans made up 66 per cent of its loans extended.

Mr Pym said the charge levelled against Northern Rock - that it may have sacrificed profitability for bulk sales of cut-price mortgages - did not apply to A&L. "We stick to minimum profit criteria for each particular product," he said.

Headline profits jumped by 29 per cent to pounds 230m. Underlying profits, excluding pounds 28m of conversion costs last year, showed a more modest 12 per cent rise. The shares rose by 19p to close at 868p.

Interest income was boosted by higher interest rates and a big increase in unsecured lending through the bank's personal finance arm, which extends small-ticket personal loans to customers.

Unlike Woolwich or Halifax, Alliance & Leicester is resisting pressure from the City to use its spare capital of pounds 700m for a share buyback programme. Instead, the money is being held back for possible acquisitions.

Mr Pym said A&L was currently "very underleveraged" and would seek acquisitions only if they allowed new products to be introduced to A&L customers. "What we are interested in is either increasing our customer base or bringing additional products to our customer base."

In what was a veiled swipe at rival mortgage banks, he added: "The thing we are not interested in is acquisitions overseas. The real reason UK banks go overseas is boredom. The whole history of it is that they get absolutely suckered by the locals, just the same as continental banks coming to the UK. You end up as lender of last resort to the natives."

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