Alliance & Leicester - Business Model Broken

Yesterday Alliance & Leicester reported their 2007 results. I didn't watch all the presentations so these views are formed mostly from reading the announcement and the FT. Underlying everything profits were up slightly on 2006 but one third of this (some £185m) was then wiped out by losses and impairments on Treasury Investments. I was surprised to read that only 27% of group revenues come from mortgages and savings. Just what kind of (ex) Building Society is this? They clearly didn't stick to their knitting. A little over half of funding comes from retail deposits and management want to increase this proportion but not compete against rivals offering loss leaders. Having had to replace wholesale funding with much more expensive facilities A&L will scale back on new lending and profits will fall. So if they are not going to chase savings and lending business just what are they going to do? (other than wait to be bought).

Incidentally probably one of the best saving deals for a long time is still available from Northern Rock; 6.35% fixed interest for a year with no notice. And being owned by the government this is now the safest place to invest - as good as gilt edged. While stocks last.