A&L continues to build on mortgages
By Helen Thomas Mon Jun 12, 4:55 AM ET
Alliance & Leicester, which is being eyed as a possible bid target by France's Crédit Agricole, continued to increase its share of the UK mortgage market in the first quarter of the year.
The UK bank said on Monday that it took 6.3 per cent of net new mortgage lending in the first three months of 2006, up from 5.4 per cent in 2005. The bank's traditional share - its share of the UK's existing stock of mortgage lending - is around 3.4 per cent.
Crédit Agricole was forced to admit in May that it was mulling a bid for A&L but said that its evaluation was at a preliminary stage. The French bank has EU15bn to spend on acquisitions and is looking at Germany, Spain and the UK now it has integrated its last acquisition - the French bank Credit Lyonnais.
Costs for the first half should be broadly similar to last year, A&L said, but the interest margin - a measure of profitability- continued to come under pressure as the bank did more of its business in less profitable segments of the market.
A&L will shortly begin doing business in the risker parts of the UK market, selling buy-to-let, near-prime and sub-prime products in partnership with Lehman Brothers. The specialist loans will sit on the investment bank's balance sheet, enabling A&L to avoid rising charges for bad debts.
The mortgage bank, which has always focused on prime residential lending rather than these riskier areas, said in Monday's statement that its asset quality remained strong, particularly in mortgages and commercial lending.
In unsecured lending, A&L said it had tightened its credit criteria this year as the overall market deterioriates. The proportion of loans in arrears rose to 5.7 per cent at the end of May, up from 5.1 per cent at the end of December.
But A&L said that its leading credit indicators, the quality of the loans it has written most recently, were showing signs of improvement.
Unsecured loan balances remained stable compared to the end of 2005, at £3.5bn, while the UK's shaky consumer environment and A&L's more stringent criteria meant unsecured lending fell in the first quarter to £565m, from £890m last year.
The bank said that sales of new current accounts were "significantly higher" than in the first three months of 2005, while the number of new business accounts opened was more than 30 per cent higher.
Shares in Alliance & Leicester rose 1.6 per cent to £11.82 in early trade.
James Eden, analyst at Dresdner Kleinwort Wasserstein, said that the statement would not prompt a change in his numbers for A&L and that shareholders would be waiting for news from Crédit Agricole, or from Spain's Santander, another potential A&L suitor.
Mr Eden added: "There's no doubt the company looks expensive on a standalone basis...but we have always argued that you should pay something for a take-out hope: A&L remains the best takeover target in the UK."