A&L writes down further £391m

Alliance & Leicester wrote off £391 million in the first four months of 2008 but said core operating profit was similar to the same period last year.

The losses, which include a £53 million reduction in the fair value of certain treasury assets and a £139 million impairment charge, are more than expected, with analysts predicting around £200 million.

HSBC reported first quarter losses of around £3 billion yesterday and Barclays is anticipated to write down £1.4 billion when it reports on Thursday.

Despite the write-downs and lower lending volumes than last year, an efficiency drive will help to keep profits stable, Alliance & Leicester said.

In addition, the bank confirmed that it has pre-funded its activities into the second quarter of 2009.

At the end of April, personal customer deposit balances were £23.6 billion, £0.3 billion higher than at the end of December 2007. Commercial customer deposits were £6.1 billion at the end of April 2008.

The Leicester-based bank has been focussing on increasing its retail deposits while cutting back on lending, as borrowing from the wholesale money markets became too expensive after the credit crunch.

Mortgage balances at April 30th 2008 were £41.2 billion, £1.5 billion lower than at 31 December 2007, while unsecured personal loans £3.6 billion from £3.7 billion at the end of 2007.

Gross lending in the first four months of 2008 of £649 million was 34 per cent lower than in the same period in 2007, Alliance & Leicester said.

Despite the reduction in lending, mortgage arrears increased over the period, Alliance & Leicester said. For the four-month period, 300 additional mortgages were over three months in arrears, representing 0.57 per cent of the bank’s total mortgage accounts.

Group chief executive David Bennett said: “Alliance & Leicester has made good progress during the first four months of 2008.

“The asset quality of our customer loans continues to be strong, with mortgage arrears running at less than half the Council of Mortgage Lenders’ average.

“Our funding position is also strong, with medium term funds secured into the second quarter of 2009, and we continue to have a strong capital base.”

Alliance & Leicester said its core tier 1 capital ratio – a measure of a bank’s financial strength - is 6.4 per cent. This compares with 5.7 per cent for HBOS and 5.1 per cent for Barclays, as of December 2007.

Shares in Alliance & Leicester dived five per cent to 483.75p, compared to a yearly high of 1197p.