FTAlphavilleFT Alphaville is a 2008 Webby Award Winner

• News
• Markets Live

According to Friday’s Daily Telegraph, Alliance and Leicester has secured a £10bn funding facility from a “consortium of banks.”

Credit Suisse is understood to be leading the consortium. As FT Alphaville noted on Thursday, Credit Suisse itself is lending £4bn to A&L. The whole whack is backed by A&L mortgages.

Alas, it’s still not come to light what kind of price the bank is forking out for the facility. A point raised by analysts on a conference call Thursday however, sheds a little light.

A&L expects its margin to drop as a result of “the increased cost of funding” - namely, that extra “liquidity facility” and the extortionate rates on short-term paper A&L is paying. The margin will drop to 1.07pc next year - from 1.17 per cent this year.

And of course, the £10bn bank consortium line isn’t the be all and end all. A&L’s last accounts showed £7.4bn of funding requirements in the next three months and £12.9bn due in under a year. So we assume there’s got to be more funding in place.

The consortium’s loans, and whatever else there may be, secure funding for the bank “into the third quarter of 2008″ - but A&L remain coy on whether that’s the start of the third quarter, the middle of it, or the end of it. Analysts yesterday mooted the suggestion - from Fitch via Bloomberg - that A&L had a massive payments spike midway through Q3 2008.

Overall, there are still plenty of reasons to be cautious with A&L. Not least because their growth forecasts err on the wayward side of optimistic. Two points:

Firstly A&L’s forecast expects Libor to ease right back down in line with the Bank of England rate in Q1 2008. If it doesn’t, then A&L will have additional massive costs from its short-term CP funding to factor into its books. And A&L sells a lot of CP. Witness also the fact that A&L has expanded the cap on its MTN programme by $15bn. So short term funding looks like it will figure largely in A&L’s new wholesale universe.

Secondly, A&L are placing significant weight on the growth of their customer deposits next year. That’s a cash intensive process, particularly to woo new depositors in the numbers A&L are talking about. Don’t forget also that every other UK mortgage bank is inevitably going to be pursuing this strategy. And the deposit growth A&L boast of this year includes a Rock effect. All those billions withdrawn from the Rock didn’t just end up in grotty mattresses and rolled-up socks - they went straight into other mortgage banks.