Alliance & Leicester to go public with pounds 3bn flotation shares
Tuesday 26 September 1995
According to sources yesterday, Alliance's chief executive Peter White is keen to take advantage of its Girobank subsidiary's existing Bank of England banking licence. Conversion will unlock the society's reserves of pounds 1.4bn to be shared out among 2.5 million members, giving an average possible windfall of around pounds 500. The society is using American investment bank JP Morgan to handle the deal. Flotation will put Alliance at around 60 in the FT-SE 100-share index.
The Woolwich, the UK's second biggest society, is also understood to be planning a flotation, despite denying it officially last week.
Alliance's official stance was reiterated yesterday by a spokeswoman : "We never comment on speculation and have said on a number of occasions that we are keeping our options open." However, City sources said recent rumours of a merger between Alliance and Scottish Amicable, the life insurer, had missed the point. Alliance is in the process of severing its six-year- old links with Scottish Amicable and launching its own life and general insurance operations - both of which will be administered by Scottish Amicable. This did not necessarily involve a merger, said the sources. Scottish Amicable denied over the weekend that a merger was afoot.
Alliance's thinking is that it already makes 40 per cent of profits from non-traditional business like Girobank, and needs to convert to raise cheap funds via money markets. It also concluded that, while a merger with a northern-based society would be desirable before conversion to gain critical mass, remaining societies either do not want to convert or want to be top dog in any merger. Over 40 per cent of the mutual sector has been lost, with the Halifax and Leeds merging and floating, and Cheltenham & Gloucester selling up Lloyds.
However, Abbey National's successful hostile bid for National & Provincial earlier this year has created a precedent. Alliance thinks it can float and then launch bids for any remaining societies it wants, whether their managements like it or not. Alliance has nearly 400 branches and nearly 6,000 staff. It made interim profits this year of pounds 163m on total assets of pounds 22bn, compared to Woolwich's pounds 141.8m on assets up 25 per cent. Alliance lifted its share of the mortgage market from 5 per cent in 1993 to 7.5 per cent last year.
The society has big non-traditional subsidiaries; A&L Personal Finance and Girobank, which processes pounds 1 in every pounds 4 of cash and cheques passed through a UK till. Together these businesses contributed over pounds 100m to group profits last year. Analysts are worried, however, by the society's relatively high cost base. Last year costs went up 4 per cent while income grew 2 per cent.
The Woolwich already appears to be reducing costs as part of its run- up to flotation. Last week it posted notices in branches that said that it was seeking to reduce its 7,000 head count by 10 per cent, and asked for volunteers for redundancy.
Yesterday the Woolwich issued a statement confirming that notices had gone up, but that they had not contained numbers of volunteers required. It said natural wastage, redeployment and early retirement would not be enough "to deliver savings quickly enough to meet our targeted requirements for next year". But it added that "It is sheer speculation to link this request with speculative stories in the media concerning the future of the society."
Comment, page 19
Society Price (pounds m)
Bradford & Bingley 1352
Northern Rock 802
Bristol & West 598
Prices calculated on same basis as Abbey National bid for N&P
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