Upbeat A&L promises healthy earnings growth

Alliance & Leicester, the UK's seventh-largest bank, yesterday told investors it was planning double-digit earnings growth for 2003 after demonstrating that its streamlining strategy is working.

The bank has succeeded in driving out costs in the business and beat its revenue targets for 2002. It spent most of last year cutting back on business lines, such as credit cards and life insurance, to focus on mortgages, current accounts, savings and personal loans.

Pre-tax profits for the bank were up 18 per cent to £468m, ahead of analysts' expectations of £450m, and earnings per share were up 21 per cent at 68p. Richard Pym, the chief executive, said A&L had improved its capital efficiency and meeting this year's targets would make it one of the best-performing British businesses.

He did inject a note of caution, however, on the prospects for economic growth this year. Mr Pym said: "Commentators often refer to A&L as a low-risk bank. In all sectors we aim to be at the prudent end of the credit spectrum. However, lending money to customers can never be viewed as a zero-risk business, and the economic environment we face in 2003 is more uncertain."

Mr Pym said the bank would continue to be alert to economic risks and was expecting only single-figure growth in house prices in 2003, believing that prices in some areas would fall.

Last year's booming house market certainly helped its new lending soar to a record level of £6.4bn, giving the bank a 2.9 per cent market share. The bank has stuck to relatively safe lending, avoiding the buy-to-let and more risky mortgage markets, to ensure it can weather any downturn in house prices. Despite an 11 per cent increase in bad-debt provisions to £70m, mortgage arrears decreased 27 per cent in 2002, and 91 per cent of its loans and advances are secured.

The group's pension costs have increased, and extra funding to the scheme has resulted in a cost of £27.5m this year, up from £16.5m in 2001. The figure also includes a £5m one-off provision for claims from part-time workers that were not given their full pension benefits.

In 2002 about 184,000 new personal current accounts were opened, a 28 per cent increase on 2001, and the bank now has 1.8 million current account customers. The group undertook a £188m share buyback programme in 2002 and plans to start buying back more shares. The board increased its total dividend by 10 per cent to 39.9p.

Martin Cross, an analyst at Teather & Greenwood, said yesterday that A&L had finally delivered on its objectives after "years of strategy changes and disappointments".