Remortgage boom lifts A&L profits 12% higher

Alliance & Leicester said first-half profits have risen by 12 per cent despite a cooling in the housing market.

Richard Pym, the chief executive of the company, said pre-tax profits for the six months were £262m. The bank has benefited from a booming UK housing market and low borrowing rates, but Mr Pym said growth rates in the UK mortgage market had started to slow in the past few months. Almost half the group's lending was remortgaging as existing homeowners take advantage of record interest rate lows.

"We're predicting single-digit house-price growth for the year," Mr Pym said. "House prices rises in the North and Midlands are being offset by the downturn in London. We are constraining our lending in the South-east, and have been lending more in the North, where the market is more sustainable."

New mortgage lending rose 20 per cent to £3.2bn, giving the bank an estimated market share of 2.6 per cent. But mortgage redemptions have increased by 30 per cent, bringing down A&L's net lending figure by 17 per cent to £500m.

Mr Pym last year vowed to slash the group's product lines to focus on mortgages, current accounts, personal loans and savings. Applications for the bank's retail products via the internet more than doubled in the first half of the year, compared with the same period in 2002.

The group said like-for-like revenues were 6.1 per cent higher than last year - far in excess of its target of 3.9 per cent. "We're feeling very upbeat and believe we are able to deliver further success," Mr Pym said.

He also said 90 per cent of Alliance & Leicester's loans are secured while mortgage arrears rates are improving. He added that the asset quality on both personal and commercial loans was good.

The bank bought back shares worth £50.3m in the first half of the year and Mr Pym pledged to step up the buy back programme. Analysts estimate that the bank may buy back up to £150m of shares in the second half of the year.

He also said the bank was on track to meet its double-digit earnings growth target for 2003, and earnings per share in the first half rose 17 per cent to 39.2p.

"The numbers came in above our expectations," Sarah Horder, an analyst at Teather & Greenwood, said yesterday. "They seem to be meeting all their strategic targets, which is a nice change from what they used to be like. We used to pray that they would be taken over, but they seem to be taking care of themselves."

Mr Pym was also able to tell investors that Alliance & Leicester was meeting its cost savings targets of £50m for 2003. "Customers are increasingly using direct banking, by phone and over the internet, a trend which is levelling the playing field in retail banking in our favour compared with competitors with larger branch networks," Mr Pym said. The company also pleased investors with a 10 per cent increase in its interim dividend, bringing it to 14.3p a share.

Shares in Alliance & Leicester yesterday closed up 4.89 per cent at 866p.