Woolwich shares fall despite mortgage success

Woolwich shares lost more than 6.5% of their value yesterday even though the former building society bucked the sectoral trend by clinging on to its share of new mortgage business.

Shares ended 23.5p lower at 334p as concerns about the bank's cost base exacerbated the impact of a generally depressed market.

Reporting a 4.1% rise in pre-tax profits to £250.3m in the first half, the former building society said it had taken a 5% share of new mortgage lending. Unlike its rivals, this is just below its "natural" share and well above the 1.5% it achieved in the same period last year. It also said that its net interest margin, or profit on the business, had held steady at 2%.

The bank is paying an interim dividend of 3.9p and will continue with a share buy-back programme.

"Our rivals have been saying you can have market share or margins but you can't have both. We've achieved both. We saw the changes in the market coming and came up with smarter products," said John Stewart, chief executive of Woolwich.

The bank's flexible mortgage product was a "major factor in holding market share against significant market forces". However, its share of retail savings fell to 3.3% to 3.6%.

Woolwich has been cited as a candidate for takeover or merger since talks between its closest rival, Alliance & Leicester, and Bank or Ireland broke down last month.

Mr Stewart made it clear, however, that mergers and acquisitions were not on his agenda: "I wouldn't be interested in merging with one of yesterday's banks." He suggested Woolwich was too expensive to take over but if an attractive offer were made he would "probably recommend it" to the board.

Rather than pursue mergers, the bank will seek out more joint ventures like the one with Littlewoods which gives the bank access to the 3.5m customers of the retailer's home-delivery catalogue.

The market was unsettled by the rise in its costs to £198.6m from £185.3m, which included £14.4m for investing in new businesses.

The bank is piloting an open plan services product which allows savings and borrowings to be handled in the same account.

It is also pushing ahead with its new joint venture with Countrywide of the US to set up global home loans, a mortgage processing service which should be operational by the end of next month.