Alliance & Leicester (A&L) has reported a 34 per cent
decline in net profit after it wrote down the value of its
investments by £185m amid deteriorating financial conditions.

A&L’s core operating profit before write-downs was £602m for
the fiscal year ended 31 December 2007, a 2.9 per cent increase
over the previous year. But its exposure to risky treasury assets,
redundancy costs and hedging losses brought net profit down to
£296m compared with £450m a year ago.

Nonetheless, its commercial lending business which includes
asset finance and leasing, posted stronger results as core
operating profit rose 30 per cent to £150m. Net interest margin
rose to 2.08 per cent from 1.73 per cent in 2006 while its
cost-to-income ratio improved to 68 per cent from 75 per cent.

Its operating lease assets fell 5 per cent to £284m as with net
investments in finance leases and hire purchase contracts which
dropped 0.9 per cent to £1.91m. Leasing and hire purchase made up
26 per cent of total commercial lending in 2007 compared with 34
per cent in 2006.

A&L’s commercial lending continued to focus on the
transportation, property and film segments.
A&L also estimated funding costs would rise to £150m in 2008,
almost six times higher than the £23m it paid in 2007.

Responding to market uncertainty, the bank almost doubled its
cash held at other banks to £6.3bn in the second half of 2007.

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Unprecedented conditions in the financial markets have had a
significant effect on A&L’s performance and its ability to meet
short term objectives, group finance director Chris Rhodes said in
a statement, adding that funding would be the bank’s priority as
long as markets remained unstable.