Record year strengthens Woolwich against bids

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The Independent Online
Woolwich Building Society's defence against any would-be takeover bidders was strengthened yesterday after it announced a record 29 per cent rise in half-year pre-tax profits to pounds 183m.

Analysts said the rise, from pounds 142m in the same period last year, meant that if a predator mounted a bid Woolwich would cost significantly more to buy.

Rob Thomas, building society analyst at UBS, the Swiss banking group, said: "If one assumes that a takeover is based on a multiple of 13-times annual profits after tax, Woolwich may have increased its value by several hundred million pounds."

John Stewart, newly-appointed chief executive atWoolwich, denied, however, that the society had received any formal approaches from likely bidders, including Prudential. He said: "We are on track for conversion and flotation around this time next year."

The society's results were boosted by a doubling of contributions to pounds 25m from its various subsidiary companies, including its unit trust and life businesses and both Spanish and Italian lending operations.

Mr Stewart said: "At the 1995 half-year, [our] subsidiaries had contributed some 5.2 per cent of group profit. This year, for the same period, the figure is 13.5 per cent."

Woolwich said its 200-strong estate agency operation was also running at a profit and contributed 12 per cent of the company's lending and one- third of its life insurance sales.

Net mortgage lending, after redemptions, in the first six months of 1996 rocketed by 700 per cent to pounds 1.67bn compared with the same period last year. Gross lending, which includes the acquisition of a pounds 700m mortgage book from Midland Bank's French subsidiary, was up 128 per cent to pounds 2.9bn.

Woolwich claimed that, with a housing market recovery finally in sight, profits from its core lending business were set to flow through at a faster rate than before.

Mr Stewart added that an end to the recession could also bring to a close the heavy reliance on discounted mortgages used to entice borrowers in the past two years. But he said: "We would like to do it but it depends on other forces in the market. On our own we account for 5 per cent of lending, so if we went in alone it would make little difference."

The society's cost to income ratio, how much it costs to run Woolwich, dropped from 51.4 per cent last year to 45.9 per cent in the first six months of 1996.

Despite the positive reaction from analysts, many still said the society was a likely takeover target.