More on Alliance and Leicester
Alliance & Leicester H1 results
Alliance & Leicester, the building society turned bank, reported flat earnings in a market characterised by slowing volumes, shrinking margins and rising bad debts. The bank reported core operating profits £263m for the half year to June 2005 compared to £262m a year ago.
The weak housing market saw Alliance & Leicester’s gross mortgage lending drop to £4.1bn (2004:£5.5bn) whilst net lending was £1.6bn (2004:£2.5bn). The total UK net mortgage lending in the first six months of 2005 declined to £41bn from £50bn a year ago.
Unsecured personal lending grew 17% to £1.5bn (June 2004: £1.3bn) but only partly offset the decline in mortgage lending.
Overall, interest spreads contracted to 1.39% from 1.56% a year ago as market conditions tightened. Non-interest income of £134m was £17m lower than the first half of 2004 due to lower life assurance income and a reduction in credit card revenues.
Bad debts in retail banking rose to £30m (up £12m on last year), mainly relating to unsecured personal loans. There was no increase in bad debts in mortgage lending and a small reduction in bad debts connected to wholesale banking.
The bank was able to offset the decline in income through tight cost control including the benefit of branch rationalisations (carried out last year) and the generation of a greater volume of business through direct channels.
Cost reduction seems to feature heavily in the bank’s growth strategy. The bank says simplification and direct banking will continue to improve operating efficiencies in the future and while this is certainly good, it prophesies a rather unexciting future. Solvency is adequate and there are no serious concerns particular to this stock but more diversified banks will tend to offer better growth prospects.
The share trades at 886.5p, on a prospective PE (2005 earnings)of 10.3x with a yield of 5.9%.
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