What does Alliance & Leicester's takeover mean for you?
Alliance & Leicester is to be bought by Spanish bank Santander, and eventually merged with Abbey to create a larger, stronger bank.
Santander says it expects the acquisition to be completed by October, subject to regulatory clearance from the Financial Services Authority and the Bank of Spain.
The deal values the business at 317p a share, and the announcement sent its share price flying. But what does it mean for customers and investors?
Borrowers and savers
Customers of Alliance & Leicester are unlikely to see much change at first. If you are a mortgage borrower, then the ownership of your debt will be passed from Alliance & Leicester to Santander once the deal has completed.
This shouldn’t impact you too significantly – in fact, you’re unlikely to notice any difference at all other than potentially different branding on your statements.
The deal suggests that Santander has a degree of confidence in the UK mortgage and housing market – after all, Alliance & Leicester is a prominent mortgage lender, but has seen a 30% fall in profits as a result of the credit crunch.
However, Santander says that, in order to address any potential liquidity issues, it will cut assets on the combined Alliance & Leicester and Abbey balance sheets by between £20 billion and £30 billion over the course of two years.
The means that borrowers regarded as undesirable - such as people with little equity in their homes - might be refused new mortgages when their current deals expire, or offered such unfavourable rates that they are forced to go elsewhere.
The possibility will be a worry for many borrowers. But a spokesman for Alliance & Leicester says they shouldn't worry just yet: "The deal is still in the very early stages, and these issues have not even been fully considered as yet. When we have something to tell our customers, we will, but in the meantime people shouldn't worry about what might happen."
The impact on savers is likely to be minimal in the short-term. Again, the brand might change but your deal isn't likely to change straight away.
In the longer-term, some customers with both Abbey and Alliance & Leicester will benefit from the deal. For one, they will be part of a much bigger banking group (the second largest lender after Halifax). Secondly, bigger banks tend to have the ability to offer more competitive interest rates for customers, especially savers.
But Kevin Mountford, head of current accounts at moneysupermarket.com, fears that when it comes to saving and current accounts, consumers could lose out.
"Abbey and Alliance & Leicester have both been key players in driving competition. We have often seen them head to head in the savings and current account markets, ensuring that customers had some excellent options to choose from. The question now is whether this competition will be neutered," he warns.
Other experts point out that less competition in the market means less choice for consumers.
What about shareholders?
Alliance & Leicester’s share price has taken a battering so far this year, falling from around the 817p mark in January to lows of around 213 in June and July. Prior to the Santander announcement, the share price closed on Friday 11 July at 219p – following the announcement, it jumped by around 50% and eventually closed at 335p.
The rally reflects anticipation that a rival bid will be launched for Alliance & Leicester. The merger will give Santander a significant foothold in the UK market, and will alarm its competitors and market leaders. However, rival UK banks may not be in a position to launch a rival bid, as any spare cash they had will surely be earmarked to help with with funding issues.
In previous years, multiple American firms were sniffing around the UK mortgage market with many dipping their toes in to test the water. However, in light of the ongoing credit crisis, an American firm is unlikely to launch a rival bid for Alliance & Leicester.
Equally, European banks have taken a hit from the global economic conditions. However, there are one or two players – including Santander – in a position to acquire their British counterparts.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.