Alliance & Leicester hurt by the credit squeeze

Alliance & Leicester (A&L), the former building society, has said it is struggling in the credit squeeze as it has been forced to writedown the value of a whole raft of asset-backed securities on its balance sheet by a total of £156 million so far this year.

There have been rumours that A&L had become caught in the liquidity squeeze that caused the collapse of Northern Rock.

Standard & Poor, the ratings agency, downgraded the bank from stable to negative earlier this week and warned it could be in serious trouble if the credit squeeze did not end soon.

Furthermore, the doubt surrounding A&L has been fuelled by its failure to set a date to discuss its third-quarter results. It bundles mortgages together and sells them on to other banks, so could be at risk if this market dries up. The bank revealed that it will have to depend much more on customers’ savings than it can rely on the money markets in the coming months.

A&L’s chief executive, David Bennett, said by the end of October, 57% of its loans and mortgages were funded by customers’ savings, leaving the other 43% coming from the money markets.

Mr Bennett added that next year, we expect our asset growth to be primarily funded through higher customer deposit balances, although we will continue to look for opportunities to complete further capital market transactions.

The bank has put in place additional funding facilities as a prudent measure and in recognition of the current market conditions. It has also tried to reassure its investors that it has ‘continued to manage our funding requirements successfully during the latter half of the year, through a combination of raising new funds or rolling over existing funding as it matures’.

Bradford & Bingley, the buy-to-let specialist mortgage lender, also faced rumours of a funding squeeze but is confident about its market expectations.

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