Alliance & Leicester will soon be bought by the Spanish owner of Abbey. Will this mean the end of its table-topping current and savings accounts?
On Monday, the Spanish bank Banco Santander agreed a 317p per share takeover offer for Alliance & Leicester (LSE: AL). Santander is already quite well known in the UK having bought Abbey in 2004 and this cut-price deal for A&L will allow it to solidify its position. Its aim is to achieve a 10% share in each market it operates and this deal will take its UK position to nearly 8%.
Sadly, the deal could mean many of A&L's 8,000 employees lose their jobs. It could also mean another banking brand could soon be on the way out. We've seen Northern Rock drastically cut back its operations and the less-lamented FirstPlus closed to new business last week. Now it's the turn of A&L and it's very unlikely to be the last casualty of the credit crunch.
A&L has offered a number of excellent value products over the last few years. What will happen to these deals remains to be seen. It's worth pointing out that Abbey has become a lot more competitive since it was bought out, offering products such as the Abbey Zero credit card, free business banking for life and smartening up its range of savings accounts. But Santander also has a reputation for being a very lean operator and there are reports that Abbey's customer service has suffered as a result.
Current accounts
A&L's range of Premier current accounts would arguably be the biggest loss if it was to get the chop. It pays credit interest of up to 8.5% AER for the first year and a good rate thereafter. It also offers the best-value overdraft deal with no interest charged on agreed overdrafts and monthly charges limited to £5 that kick in after the first year.
Almost a quarter of a million people opened a Premier account last year and it has allowed A&L to steadily increase its share of the current account market to almost 3%. Abbey has boosted its current account range recently but it's not quite as attractive as A&L's.
Savings accounts
A&L has a reasonable range of savings accounts but has regularly topped the tables when it comes to regular savings. Its current offer of 12% AER is only open to those who also open a Premier current account. One of its biggest competitors in this niche market is.... you've guessed it... Abbey.
Personal loans
Along with current accounts, A&L has also been very strong in personal loans recently, particularly through its Moneyback Bank operation. It lent out £2.3bn in 2007, which was almost 7% of all personal loan advances.
However, having topped the Best Buy tables for a few years, it's slipped down the rankings slightly in the last twelve months. Moneyback's current offer of 7.6% on loans of £7,500 and above is still pretty good but can be beaten.
Mortgages
A&L has been a cautious mortgage lender over the years and its arrears are a lot lower than the industry average. It's the nation's ninth largest lender but Abbey is the second with a mortgage book three times its size.
Santander is proposing to move much of A&L's back office operations to its new IT systems and this has sparked fears that the flexible features of A&L mortgages could be one of first areas to get the chop. However, A&L mortgages could become more competitive as a result of the lower funding costs it can access once it's part of a bigger bank. Santander current market value is some £55bn, making it the same size as Barclays (LSE: BARC), HBOS (LSE: HBOS) and Lloyds TSB (LSE: LLOY) put together!
Shareholders
A&L has half a million shareholders who own 250 shares or less. They'll get one Santander share for every three A&L shares they currently hold. A low-cost dealing facility will probably be made available for those who don't want to hold shares in a foreign bank. About a quarter of Abbey's 1.6m shareholders used such a facility when it was taken over but the remainder have done well from hanging onto the shares.
The current price of the deal is some way below A&L's 542.5p float price from way back in April 1997. It's also reckoned to be half the price Santander was interested in offering late last year and less than a quarter of the price Credit Agricole might have paid when it expressed an interest in a bid back in 2006. Still not many people are expecting a competing bid, despite the low price on offer as other potential suitors will be constrained either by cash or competition concerns.
We'll have to wait and see how this takeover pans out. But the loss of many of A&L's products would certainly be a step back for the UK's otherwise competitive financial marketplace.
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