UK mortgage lender 'strengthens funding position'

British mortgage bank Alliance & Leicester today said it had further strengthened its funding position, despite a greater-than-expected £185 (€248m) hit amid the credit crunch.

The group confirmed that it was now funded to the end of the year in a bid to allay liquidity concerns in the wake of the Northern Rock crisis.

A&L revealed that losses from investments knocked by the credit squeeze and those linked to US sub-prime mortgages would be more than three times the £55m (€74m) it estimated last November.

The group added that chief executive David Bennett was taking a temporary leave of absence due to illness, to be replaced in the interim by group finance director Chris Rhodes.

Alliance shares rose 2% today.

A&L said 2007 core operating profits - excluding the losses - remained in line with market forecasts at more than £598m (€804.7m).

Its funding news will provide some relief to investors anxious that A&L would see its liquidity dry up after credit markets were thrown into turmoil last summer.

A&L sought to reassure that it was continuing to reduce its reliance on short-term wholesale money market funding, with 56% of customer loans and advances funded by saving deposits.

The group has around £23.4bn (€31.4bn) in retail deposits and £8bn (€10.7bn) in deposits from commercial customers.

Mr Rhodes stressed that the group’s retail and commercial bank businesses “continue to perform well”.

He took over today as acting chief executive from Mr Bennett, who is suffering from an abdominal illness, according to the group.

A&L chairman Derek Higgs said the group was not expecting Mr Bennett to return “in the short term”.

Mr Bennett took on the top post at the end of last July.

A&L has had a volatile past six months on the stock market, with shares under pressure due to concerns over funding.

The stock fell to as low as 576p in November, less than half the value before the credit crisis.

The share price collapse is thought to have left A&L as an attractive takeover target, with reports that Abbey-owner Santander has shown interest, although talks are said to have stalled over price.

The buy-out rumours have offered some recent share support, with A&L up around 12% so far this year.

Sandy Chen, banking analyst at Panmure Gordon, said “things looked better” for the group on the funding side, with its deposit base now “robust”.

He has trimmed the forecast for 2007 earnings by 4%, but said the higher losses revealed today had already been expected.

“A&L remains the most likely target amongst the UK banks because of its current account franchise,” said Mr Chen.