A&L profits from housing boom

The housing boom helped Alliance & Leicester notch up an 18% jump in pre-tax profits but the bank yesterday warned of the "potential dangers" that lie ahead.

A&L said the economic environment was more uncertain and it only expected single-digit price growth this year, with "some reductions in house prices in localised areas".

Britain's seventh largest bank reported that pre-tax profits climbed to £468m for last year from £396m in 2001. It lent a record £6.4bn in new mortgages last year, but has steered away from the "higher risk" sectors such as buy to let and loans to people with poor credit ratings.

The former building society cheered its 450,000 private shareholders - most of them current and former customers who received windfalls when A&L floated in 1997 - by raising its total dividend for 2002 by 10% to 39.9p a share.

But the figures were not enough to dampen the takeover speculation that has frequently reared its head in recent years.

Banking analysts at Fox-Pitt Kelton said: "We continue to believe that A&L is a consolidation target." The shares closed down 7.5p at 772.5p.

A&L has been focusing on four core products - mortgages, current accounts, savings and unsecured personal loans - and yesterday set out its stall as a "low-risk bank".

It has no investments in corporate bonds, emerging markets or hedge funds, sold its life insurance business to Legal & General last year, has stopped underwriting household insurance risks, and is "being careful" in mortgage lending.

The bank was keen to emphasise that two thirds of its existing mortgage book was outside London and the south-east, "where we see the greatest threat to house prices". Unlike some rivals, it never lends more than 95% of a property's value, and in the south east the maximum is 90% when the price is more than £150,000.

"We will continue to be alert to economic risks in 2003 and maintain our cautious stance... We are mindful of the potential dangers of the economic climate," said chief executive Richard Pym, who added that he believed house prices were unlikely to rise by more than 5% this year.

A&L is aiming for a £100m cut in costs by the end of 2003. Mr Pym said this would not involve any compulsory redundancies. But he added that there were "a couple of hundred positions which will become surplus" this year.