Alliance & Leicester corners bigger share of mortgage market, but margins drop |
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Tue, 28 Feb 2006 10:05
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LONDON - Mortgage lender Alliance & Leicester PLC has posted a marginal increase in profits in 2005 as the slow revenue growth was considerably offset by cost reductions. Pre-tax profits dropped by 7 percent to £547 million, but mortgage lending increased to £4.9 billion. But the core operating profit increased to £548 million up from £540 million reported in 2004.
"We have achieved these results against a backdrop of both slower growth in our markets, as we expected, and a modest decline in the quality of personal sector credit," said A&L chief executive Richard Pym. The UK's eighth largest bank has cut down its costs to 55 percent of its income from 57 percent in 2004. A&L said it hoped to affect further improvement in this mode by 2010. "It's a feature of our direct model -- margins are lower and costs are lower. We see ourselves as building a bank focused on the future rather than clinging to an outdated model," Pym said.
The bank said that it would issue £300 million of preference shares and will also buy them back. A&L will call for 350 voluntary redundancies this year as a part of its cost cutting measures. Analysts say that A&L is doing a relatively good job with limited resources. But Andy Penman, an analyst with Barclays Investment Services said, "The cost beat is very positive for its efficiency, but the question is how much longer can it do this for and where is the growth going to come from? I think it's very unlikely Alliance & Leicester will be around as an independent entity in five years time; it's a question of at what price and when, and there's a lot of bid speculation in the (share) price at the moment." A&L has been speculated as a potential target of Spain's Santander after the latter finishes integrating Abbey.
A&L announced a 7 percent increase in dividend to 51.5 pence to be paid out on March 8. The bank's shares dropped 2½ pence to 1136 pence in early trading.
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House prices to grow by 4% this year say CML 