×

UK Banks Secure Funds, Soothe Crunch Fears

Alliance & Leicester and Bradford & Bingley have secured funding to see them through towards the end of next year, soothing fears another British bank is facing a financing crisis.

A&L and B&B have been hit in recent months by speculation they were struggling to raise funds amid the credit crunch and could be forced to follow ailing rival Northern Rock in seeking emergency loans from the Bank of England.

But A&L, Britain's seventh biggest listed bank, said in a surprise trading update on Thursday it had lined up financing for its maturing medium-term funding into the third quarter of 2008, boosting its shares over 10 percent.

A&L will fund much of that requirement with a 4 billion pound ($8.3 billion) two-year financing facility with Credit Suisse, backed by its prime mortgage book, a person familiar with the situation said.

Buy-to-let specialist lender B&B said it has funding to see it "through to the back end of next year."

"We have taken the view that we should take our funding when we can and we got in with some early funding deals when the windows were open, so we are padded up for a long haul," said Steven Crawshaw, B&B's chief executive.

The funding reassurance outweighed some gloomy signals for the sector in 2008 and possible writedowns from exposure to assets hit in the wake of turmoil in the U.S. housing market.

"News of the (Alliance & Leicester) funding facility is likely to move the stock up in the near term but there is nothing in the statement to change our view that 2008 is likely to be a tough year for the mortgage banks and 2009 probably even harder," said Ashley Stuart, analyst at JP Morgan.

Writedowns and Slowdown

Slower economic growth and a smaller domestic mortgage market are likely to lead to a slowdown in lending and 2008 asset growth would be primarily funded through higher customer deposits, A&L said.

Higher funding costs will also hurt margins, which the bank expects to narrow by about 10 basis points in 2008.

A&L took a modest 55 million pound hit from losses on its Treasury investments, which will reduce its 2007 profit below 580 million pounds, down from 585 million last year and the bottom end of the range of analysts' forecasts.

More positively it said bad debts in retail banking in the second half of this year would be "significantly" below the 50 million pound impairment in the first half.

B&B said its 2007 profit in on track to meet the average analyst forecast of 356.6 million pounds, up 6 percent from last year's underlying figure.

But Crawshaw also warned higher funding costs will squeeze margins and the UK housing market appears set to slow next year, although he was confident on prospects in buy-to-let.

"The strong fundamentals that have underpinned the growth in this market remain," he said. "Rental levels are rising, landlords continue to add to their property portfolios and uncertainty in the housing market should drive further demand."

Crawshaw said a reduced appetite for lending and problems at other lenders would also create "organic and inorganic" opportunities, but he declined to comment on whether he planned to buy smaller rival Paragon.

B&B said it had investments in four bank-sponsored SIVs amounting to 125 million pounds and CDOs of asset-backed securities amounting to 140 million pounds, but at the end of October none of the assets were permanently impaired.

A&L shares were up 10.4 percent at 701.5p, lifting the bank's value to about 3 billion pounds. B&B shares were up 0.7 percent at 305p, valuing it at 1.9 billion pounds.