A&L funding rumours intensify

28 November 2007

Rumours that the Alliance & Leicester (A&L) will have to turn to the Bank of England for emergency funding have been doing the rounds in London, after Standard & Poor's (S&P) said the bank might suffer from a lending freeze.

The ratings agency asserted that Alliance & Leicester would face a funding crisis if wholesale markets failed to open up soon, as it put the bank's share outlook down to negative.

A&L saw a 40 per cent drop in share value since the end of August, which has further fuelled worries that the bank could be suffering from the credit freeze, although the bank denies all the speculation.

A spokesman for A&L said on Money Observer's website: "S&P haven't downgraded us or put us on credit watch. This is about the outlook in six months to two years. Also, it reaffirms that our near term funding is secure."

However, S&P's credit analyst, Nick Hill, confirmed: "The outlook revision recognises the strategic constraints and pressure on both funding and earnings arising from renewed tightness in the interbank market, the resultant likely impact on margins and volume growth, and the likelihood of write-downs and impairments on investments in structured finance assets.

"The negative outlook recognises that Standard & Poor's rating on A&L could be reduced if funding conditions do not improve early in 2008."

Despite this, Mr Hill added that A&L's asset quality, profitability and capitalisation remained fundamentally sound.

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