Some good news for the UK banking sector on Tuesday morning – or at least, an absence of seriously bad news – from Alliance & Leicester.
The mortgage lender has issued a trading update ahead of its scheduled results on 20 February.
There are tough times ahead for mortgage lenders, so it’s pretty reassuring that A&L reiterate that they have secured wholesale funding commitments in place for the next year:
The Group’s funding position has been further strengthened since our pre-close trading statement of 29 November 2007, and we have now pre-funded our maturing medium term wholesale funding, commercial paper and certificates of deposit to the end of 2008.
On the other hand, with competition for retail depositors increasing, chances of successful mortgage-book securitisation at close to zero and turbulent times ahead for the mortgage origination market itself, secured wholesale funding is, perhaps, the very least a bank might hope to cling to.
For now, however, the substantive bad news for A&L is limited. Today’s statement includes a negligible loss on structured products – namely SIVs and CDOs.
Our total Treasury impairment charge for the year ended 31 December 2007 is expected to be around £155m, of which £145m relates to SIVs and £10m to CDOs.
Which was to be expected. So too perhaps, the profit warning. Chris Rhodes, A&L’s finance director said:
Our customer-facing Retail and Commercial Bank businesses continue to perform well. Excluding the impact of Treasury investment losses, core operating profit for 2007 will be over £598m. Financial market conditions have resulted in losses on certain Treasury investments, reducing 2007 core operating profit to lower than in 2006.