UBS gave us the bleakest outlook blurb ever. From Alliance & Leicester, is this then, the most insecure?
Core operating profit was £417m (2006: £585m), in line with the guidance given on 29 January 2008.
In the same vein as Bradford & Bingley, Alliance & Leicester’s 2007 results, released on Wednesday, should contain much to be happy about. Thanks to secured liquidity lines through to 2009, A&L won’t hit trouble meeting its funding requirements. Customer deposits, in turn, have grown and the bank’s exposure to the worst of the structured finance world is contained:
On the other hand, as fears of a Northern-Rock-style collapse recede, investors aren’t exactly left with a healthy business in hand.
Margins have deteriorated steeply – the cost of all that prefunding is biting deep into the business. Profits accordingly are down. Before tax, they’re £399m, down from £569m in 2006.
And for the year ahead, in 2008, the outlook is wan, with lower customer lending volumes expected and the legacy of far higher wholesale funding costs continuing.
The aspiration, for A&L management, is to keep dividends steady.
Above all though, it’s quite clear that A&L’s performance next year is going to be very closely linked to the state of the UK economy and housing market in particular. The bank has battened down its hatches. It’s weathered the credit storm, but how well will it perform in an economic downturn?
Related links
A&L shares plunge as dividend held – FT.com