Alliance shares fall despite promise of pounds 740m buyback

SHARES IN Alliance & Leicester fell by 6 per cent yesterday in spite of an announcement by the mortgage bank that it will return up to pounds 740m to its shareholders.

The market punished A&L for announcing underlying operating profits of pounds 455m, at the bottom end of the range of analysts' expectations. Most had been expecting nearer pounds 470m and rival banks have reported higher- than-expected profits.

Traders were also annoyed by a fall in A&L's profit margins, affected by a price war in the mortgage market. A&L has sought to grab market share by offering competitive mortgage rates and keeping a tight rein on credit.

While the strategy has succeeded, boosting market share from 3.4 to 4.2 per cent, analysts were surprised to see profit margins shrink to less than 3 per cent.

Shares in Alliance & Leicester dropped from 891p to 840.5p, wiping pounds 127 from the value of the average retail investor's holding, now worth pounds 2,100.

Richard Pym, finance director of A&L, said the company would return the surplus capital to shareholders by buying its own shares in the market after April, whenever it judges the action would increase earnings per share.

Mr Pym said the bank decided against a special dividend paid direct to shareholders. "That would give the money back to some shareholders who didn't want it - it could throw some shareholders into a higher tax band," he said.

He disappointed the market by adding that the group would not necessarily spend the entire pounds 740m it held in surplus capital, and could spread the buyback over as much as three years.

The move follows recent returns of capital announced by Halifax, which is passing pounds 1.5bn back to shareholders by changing its capital structure, and the Woolwich.

Yesterday some analysts questioned whether the mortgage bank's one million retail shareholders would benefit from the mooted buyback, which may have little impact on the value of their windfalls.

A year ago, Halifax announced a pounds 1bn return of capital using the same method that A&L is proposing to use. In the year since then, its share price has fallen from over 950p to 767p yesterday.

However, others welcomed the move. Gavin Oldham, managing director of the Share Centre, a retail broker, said: "The excess capital hasn't been working for the shareholders and it has effectively been diluting the earnings per share. And if the company doesn't have the luxury of the excess capital it will wake up to the business challenges."

Privately, industry observers believe the recent spate of returns of capital could stem from a growing fear that the Government could introduce a new windfall tax on the "excess profits" of banks. Many bank executives remember a similar tax levied on banks in the mid-1980s, when they were judged to have made excess profits because of high interest rates used to curb inflation.

However, Don Cruikshank, appointed by Gordon Brown, the Chancellor, to run the Government's banking review, has indicated that a windfall tax on banks was unlikely to form part of his recommendations.

Separately, Mr Pym said the bank was planning cost cuts which would entail job losses but refused to say how many of the bank's 7,000 staff would be affected.

Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
i100  ... he was into holy war way before it was on trend
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Life and Style
lifeDon't get caught up on climaxing
Life and Style
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star