A&L faces test of confidence

by Gill Montia

Story link: A&L faces test of confidence

Alliance & Leicester (A&L) the UK’s seventh largest bank, is riding out a crisis prompted by rumours that it could be exposed to similar problems to those encountered by Northern Rock.

The bank’s share price fell dramatically on Monday, so that by the end of the day’s trading it had lost one third of its value.

Shares lost £600 million of value in the last hour of trading alone, on speculation that A&L would follow Northern Rock in approaching the Bank of England for help.

A&L converted from its building society status in 1997 and has recently been seen as a possible takeover target. As a result, its shares have been traded at a premium for some time.

It currently holds 4% of the UK mortgage market and, like Northern Rock, relies on the money markets to fund its home loans.

However, this reliance is not at the same level as that of Northern Rock and A&L has stated that it is well capitalised and does not need aid.

Strong sales of financial stocks led to other banks losing value in yesterday’s trading.

Bradford & Bingley shares fell 15%; HBOS shares fell 5% and Barclays shares fell 2.5%.

However, the A&L loss stands out amongst its rivals, and Merrill Lynch has downgraded its recommendation on A&L to “sell” from “neutral”.

This reflects the broker’s opinion that a takeover of A&L is now unlikely.