The Alliance & Leicester building society said yesterday it was pulling out of the estate agency business, and announced a pounds 40m write-off that took the wind out of profits. Peter White, chief executive, said he hoped to have sold or closed the 70 agencies by late summer.
"There was no way we were going to make money out of it. We just had to take a tough decision," he said.
The decision to get out of estate agency is part of the process of cleaning up the balance sheet for A&L's planned flotation on the stock market next spring. The goodwill in the chain, concentrated in East Anglia and the east Midlands, is pounds 25m, with a further pounds 15m coming from redundancy and closure costs.
The write-off held pre-tax profits last year virtually flat at pounds 287m, as A&L faced very tough conditions in two of its core business markets: home loans and Girobank, the group's corporate banking side. The mortgage market became increasingly competitive in 1995, with a wider range of discounts, fixed rates and special offers than ever before.
A&L achieved its highest-ever market share of total UK net mortgage advances at 8.2 per cent, as against its "normal" share by market weighting of 5 per cent. But Mr White conceded that earnings on this increased share were slim. "The margins are very tight on new business. But we do not launch anything that does not make a profit," he said.
Girobank, which is the country's biggest telephone banking operation, was also operating under "very tough conditions", he said. The personal banking sector fared the best, with a 57 per cent increase in pre-tax profits to pounds 63m. But Girobank's corporate money transfer business saw profits inch up to pounds 66m from pounds 63m in 1994.
Easing the pain of the estate agency write-off to some extent was an unexpectedly sharp drop in the bad debt provision to just pounds 3m, from pounds 29m in 1994. "These are the lowest bad debts we have had for a long time, thanks to recoveries of commercial loans previously written off," said Richard Pym, group finance director. The cut in bad debt provisions accounted for much of the 15 per cent increase in group pre-tax operating profits to pounds 327m.
"Overall, the results are below expectations. Even though the improvement in bad debts is extremely good, it means on an operating level the profit growth has been small," said Rob Thomas, analyst at UBS.
Unlike most building societies, 40 per cent of Alliance profits are from non-traditional activities. This is one reason why it is anxious to gain bank status.Reuse content