Profits at Alliance & Leicester all but wiped out

1 August 2008
Half-year profits at Alliance & Leicester have been virtually wiped out due to the credit crunch and tougher market conditions.

The bank, which agreed to be taken over by Abbey’s parent company, Banco Santander, for £1.3 billion last month, posted a profit of just £2 million in the first six months of the year, compared with the £290 million in the same period last year. A&L revealed that it was forced to write off £209 of investments due to the ongoing credit crunch, and took a £70 million hit from soaring funding costs.

In addition, A&L announced that some of its treasury investments fell by £66 million while the drop in other assets cost the bank an additional £143 million.

However, chief executive of A&L, David Bennett, believes the bank is well positioned for the future. “We continue to be well capitalised and to have a strong funding position," he says. “The proposal from Santander provides A&L with greater stability and greater certainty in uncertain times." The merger will see a £1 billion injection of new capital to shore up its balance sheet.

The bank also revealed that 154,000 new personal accounts and 17,200 new business current accounts have been opened in the first half of the year, and that its retail customer deposit balance had increased by £0.8 billion to £24.1 billion at the end of June.

A&L isn’t the only bank to be feeling the pinch, with other banks also announcing disappointing profits this week. Profits at Lloyds TSB have fallen by 70% in the first half of the year, while HBOS announced a 51% drop.

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