Alliance & Leicester rallies after unveiling £200m share buyback

Alliance & Leicester brought some good news to the market yesterday by revealing profits are up and it is to buy back at least £200m of shares.

The share price rallied 5 per cent to 758p, as the market reacted positively to the results, rewarding Alliance's efforts to drive down costs.

The bank, however, said it might have to cut jobs to keep costs down but did not specify how many might go.

Pre-tax profits for the half year were up 12 per cent to £233m, at the top end of expectations.

Richard Pym, the chief executive, said A&L is on target to cut costs by £20m this year.

"We are hitting all our targets, in costs and in simplifying the business," he said. Some analysts believe the share buy-back programme could go up to as much as £350m.

A&L is actively streamlining operations to concentrate on mortgages, current accounts, savings and unsecured personal loans. Its life insurance business has now been offloaded to Legal & General and Mr Pym is in talks to sell off its credit card operations to a third party.

"There are currently 37 different product brochures in our branches – how do people know which one to pick up? By the end of the year there will be 12. There are nine bits of plastic for our customers, soon there will be three," he said.

There was a 40 per cent rise in new current accounts and profits from unsecured lending were 45 per cent higher than last year.

Martin Cross, an analyst at Teather & Greenwood, said: "A&L still can't hold a candle to the likes of HBOS. It showed pretty anaemic asset growth and is punching below its weight in the mortgage market. But it did have some fair first-half gains and is in much better shape than it was a year ago."

Mr Pym said A&L was better positioned than other banks to survive any slump in the housing market or prolonged economic slowdown because it has steered clear of the boom in the more risky buy-to-let mortgage market and kept the quality of its lending high.

Gross mortgage lending was up 16 per cent, giving A&L a 3 per cent market share. That A&L is still not making more sizeable headway in the mortgage market is causing some concern.

Mr Pym also sought to quash takeover speculation by stating his confidence in the ability of A&L to grow as an independent business.

Basic earnings per share were up 14 per cent to 33.5p and the interim dividend is being increased 10 per cent to 13p.