Alliance & Leicester announces write-downs

Alliance & Leicester (A&L) is the latest casualty of the sub-prime mortgage crisis after it announced that losses from investments in assets had more than tripled in November and December.

The mortgage lender said it will have to write-off £185 million, over 3 times its previous estimate of £55 million.

The news followed the announcement that chief executive, David Bennett, had taken temporary leave of absence with an abdominal illness. Finance director, Chris Rhodes, has taken over as acting chief executive in the short-term.

A&L said that it had funding in place for most of 2008 after it arranged a £4 billion credit facility with Credit Suisse. However, analysts warned this was probably at high interest charges. Its loan book remains just 56% funded by customer deposits.

Analysts at Numis said it expected the new funding will cut margins throughout 2008. It reduced its target price from 674p to 573p saying it may well have to take more impairment charges as the UK economy weakens this year.

The bank also noted the value of a number of other investments fall by £30 million last year compared with previous forecasts of £15 million.

Earlier this month, it was reported that Spanish bank Santander, who took over Abbey National in November 2004, was believed to be in negotiations to buy Alliance & Leicester. Shares in A&L rose 57p to 705p following the take-over speculation.

Last year, shares in the bank fell 43% following the Northern Rock crisis. Many believed the former building society would follow in the footsteps of the crisis-torn bank as out of all the mortgage banks, A&L was seen by analysts as the most similar to Northern Rock.

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