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Sellers lose out as Alliance shares climb

The 640,000 investors who chose to sell their shares in Alliance & Leicester last week lost out yesterday, with the price climbing to 571.5p at one stage during the company's debut on the stock market. Some 27 per cent of the 2.3 million people who received free shares decided to sell through an auction conducted by Cazenove.

The shares in the reconstituted bank eventually closed at 566.5p yesterday, valuing the 250 free shares received by all of the former building society's members at pounds 1,416.

The closing price values the new bank at pounds 3.3bn. The pounds 1,416 windfall for the 1.5 million investors who have retained their stakes is considerably more than the pounds 1,000 forecast by the bank's advisers last October.

The result of the first of three auctions held among institutions, which was held on Friday, was published yesterday. The average price achieved was 522p, the highest was 546p and the lowest 517p. There were 36 bids for a total of 52 million shares. The second auction was held last night, and the final round of bidding will be held late this afternoon.

Dealings opened yesterday at 545p, well above the middle price of 521p forecast by the City bookmakers, IG Index, at the close of business last Friday. A&L shares were easily the most active stock traded and by the close of business an estimated 70 million shares had been traded, including the 52 million sold by auction to institutions last Friday night.

Those who voted to sell their shares through stockbrokers Cazenove will have to wait until the start of trading on Wednesday morning before they know how much they will receive for their shares. They will get the average of the prices realised at the three auctions. The average price of last night's auction will be made known this morning.

The relatively low turnover yesterday excluding the shares auctioned last Friday suggests that the institutions were prepared to wait and see whether the shares could be bought cheaper But if prices start higher again this morning, some dealers said it it could trigger a surge in demand from institutions who will eventually need to hold up to half the total issue after it becomes a constituent of the FTSE 100 share index.

The surge in the share price yesterday took most of the City institutions by surprise and opinion is now divided whether it is sustainable. Last night's price values the shares at 13.9 times historic earnings and implies a yield of 3.6 per cent gross on the notional dividend the directors would have paid for last year. On the same basis its nearest rival, Abbey National, is trading at 14.4 times earnings and yields 4 per cent gross..

But John Leonard, banking analyst at Salomon brothers claimed the proper price based on fundamentals should be 480p-500p and the market price implied a strong expectation of a bid for the new bank or an early move to return surplus capital to shareholders.

If the market price is maintained it may have widespread implications for the value of shares in the Halifax, Woolwich and Northern Rock building societies and for Norwich Union, all of which are converting to public companies in the next three months. If larger numbers of shareholders now decide to hold on to their shares in these conversions in anticipation of a bigger profit by waiting, it could force institutions to bid prices up to secure the shares they need to comply with their investment rules.

Market report, page 23