A&L shocks the markets with £185m write down

Alliance & Leicester admitted regret about its investments in risky assets yesterday as it scrapped its profit target and said it would not compete strongly for new mortgage customers this year.

The bank's shares fell nearly 7 per cent to their lowest since 2000 after it said £150m of extra funding costs would squeeze margins this year. At one point the shares were down 19 per cent at an all-time low.

The former building society wrote down £185m of structured-credit assets held in its treasury operation, causing full-year profit to fall 30 per cent to £399m.

Richard Banks, who heads A&L's treasury business, said: "I regret it [the investments] because we have a loss to the P&L of £185m and that has got to be regrettable." He said when the investments were made in 1999 the entire industry had assumed that there would always be a market for the assets.

Chris Rhodes, the finance director and acting chief executive, said the treasury would now be "a banker, not a profit centre" for A&L. He said banks had been too complacent about risk and had not planned for a combination of shocks hitting the industry at the same time.

Fears about lack of funding hit A&L's shares last year after Northern Rock was unable to meet its liabilities. A&L eased concerns in November and now has finance from other banks in place into next year. But the increased cost of that funding will cause the net interest margin to shrink to about 1 per cent from 1.16 per cent last year.

With margins and lending shrinking, the bank yesterday axed its target of growing earnings per share by at least 9 percentage points above inflation. The bank froze its second-half dividend and said it intended to hold the annual payout at 55.3p this year.

Mr Rhodes said A&L would not compete strongly for new mortgage business this year. It will instead try to retain about 70 per cent of 100,000 existing customers coming up for new deals because they are more profitable and safer. "We expect mortgage lending to go backwards in 2008. You are not paying distribution fees [to brokers] and you are getting a known customer with a track record," he said.

A&L will also stay out of the fierce war for savings customers if they are not profitable. The bank added £1.2bn of deposits last year but almost all of that was in the first half, before the run on Northern Rock freed billions of pounds of savings that have flowed to other banks.

Mr Rhodes said the lack of inflows in the second half was not because savers were staying away from A&L but because it did not offer unprofitable rates. With wholesale markets almost dead and loan growth slowing, banks are competing for retail funding but Mr Rhodes said he would sooner use more reliable loans from banks than pay sky-high retail rates. The bank will compete hard for current accounts, which are the key to selling other products, Mr Rhodes said. The bank's shares closed at 492p.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory