A&L pledges shares buyback

ALLIANCE & Leicester has steadied nerves about the prospects for British banks by unveiling a 12% rise in first-half pre-tax profits and promising a share buyback.

The bank said the buyback, in the second half of the year, would bring its capital base down to a more efficient level. It added that it was on target to meet revenue and savings targets but admitted it would be hit by an extra £20m a year in costs because of structural changes in the cash market.

Chief executive Richard Pym declared his first set of results very satisfactory and played down the impact of the extra costs, the result of a cash-handling arrangement with the Post Office.

In commercial banking, A&L has struck a deal to use the Post Office network for the handling of smaller-ticket nonwholesale cash. It has also made an arrangement with Securicor regarding the larger-ticket wholesale cash market. A&L said: 'This new business model for the provision of cash-handling services is sustainable for the longterm future. It will, however, involve a step-change increase of around £20m per year in the commercial banking cost base from 2003.'

Finance director David Bennett-said: 'We will be endeavouring to achieve our cost targets despite that increase, and indeed for 2002 we certainly will. For 2002, the impact of the cash market agreement is to increase our costs by £9m and we believe we are on track to achieve our target of £20m savings against the core cost base of £650m.'

First-half pre-tax profits rose to £233m on the back of a 5.8% increase in like-for-like revenues, leading the bank to predict it would hit its 4% revenue growth target for the full year.

Mortgage lending in the first half hit a high of £2.6bn, up 16%, giving A&L a market share of 2.7%, slightly down on the previous year. The bank said its mortgage book continues to be low-risk with just 9% of the loans for sums more than 90% of the property value. Mortgage arrears have fallen by 21% since the end of 2001 and it continues to avoid lending in high-risk areas such as buy-to-let.

To bring its cash base down to a tier one capital target of 7.5%, A&L will launch a share buyback before the year-end. This is likely to hand back some £200m to shareholders.

Earnings per share climbed 14% to 33.5p and the interim dividend is up 10% at 13p.