Alliance & Leicester turns away bid

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The Independent Online

Alliance & Leicester, the high street bank long seen as a likely takeover target, has received an informal approach from France's biggest bank.

Overtures from Crédit Agricole made within the past fortnight suggested it could be prepared to pay 1,300p a share for A&L, valuing the mortgage bank at almost £5.8bn. A&L's management, led by its chief executive Richard Pym, thought that too mean and reckons the business worth 1,500p a share.

Because Crédit Agricole's approach was informal, A&L was not required to make it public. Since then, it is believed that conversations have taken place with another potential buyer, Santander, the Spanish owner of the rival mortgage bank Abbey, about a deal worth a shade north of 1,400p a share to A&L's investors.

Yesterday, A&L shares ran ahead 11p to a record 1,190p as rumours swirled through the City that a bid could be imminent. As on Monday when takeover speculation resurfaced, the bank remained tight-lipped.

Crédit Agricole also declined to comment. Although talks are not ongoing, it may become more serious after considering its options.

France's biggest bank has made no secret of its desire to do a deal with someone; most experts had thought it would look to Italy. But a controversial €10.7bn (£7.4bn) move by another French bank, BNP Paribas, for Italy's Banca Nazionale del Lavoro in February made similar Franco-Italian acquisitions more politically contentious.

Santander's chairman, Emilio Botin, until recently had been widely expected to turn his attention to A&L once his bank has digested Abbey, probably towards the end of this year.

More recently, it is said that he has steered big investors towards the view that his bank is more likely to be interested in a different type of business rather than another British mortgage bank.

But Mr Botin has a track record of making sizeable buys quickly in areas he had previously declared uninteresting, should opportunities arise. Barely had he indicated to major investors that he was not looking to America for a business to buy than Spain's biggest bank shelled out $2.4bn (£1.4bn) for 19.8 per cent of the Pennsylvania lender Sovereign Bancorp late last year.

Should Santander swallow A&L on top of Abbey, it would control about a fifth of Britain's new mortgage lending and pack a punch similar to HBOS, long the dominant player in the UK home loan market. Cost savings from combining the two lenders would be considerable. In February, A&L revealed that profits dipped last year despite an increase in its share of the mortgage market to 5.4 per cent. It was hit by a 5.1 per cent rise in the number of customers failing to keep up payments on unsecured loans, despite fewer borrowers falling behind with mortgage repayments.

Steeper home loan payments and stiffer utility bills have left more Britons struggling to meet obligations on credit cards and other loans. At £547m, A&L's pre-tax profits were 7 per cent lower in 2005 than in the previous year, when earnings were bolstered by the sale of the bank's payment processing business.

Charges made against bad debts were £74m, up 61 per cent on 2004. In response, A&L has made it more difficult to get a loan, and now turns away more than 60 per cent of applicants.

Deep cost-cutting worth £21m flattered profits. That was achieved by growing its internet banking operation and installing more cheque and cash deposit machines in branches. A&L also said it would move into riskier areas of the mortgage market such as buy-to-let and target riskier customers.

Mr Pym said the bank was close to partnering an investment bank to allow it to handle business from borrowers who would traditionally struggle with credit checks.

Numbers game: How the banks compare


Market value: £5.2bn

Pre-tax profits: £547m

Customers: 5.5 million

Employees: 8,500

Chief executive: Richard Pym


Market value: €48bn (£33.2bn)

After-tax profits: €3.9bn

Customers: 22 million

Employees: 62,000

Chief executive: Georges Pauget


Market value: €75bn (£52.0bn)

After-tax profits: €10.7bn

Customers: 63 million

Employees: 129,196

Chairman: Emilio Botin