IF YOU took only a cursory glance at Alliance & Leicester's swansong trading figures as a listed company, you would conclude that Banco Santander of Spain's "rescue" bid did not come a day too soon.
Write-downs on tainted credit-crunch-related assets mean A&L barely scraped a £2 million pre-tax profit in the first six months of 2008.
That compared with a £209m profit in the same period of 2007, those balmy far-off days when few people had hea
rd of sub-prime lending, liquidity crunch and credit crunch.
That corresponding period of sunny profitability last year was also when Northern Rock was still considered to have a viable, independent future. Different world.
But a deeper look at A&L's performance shows that, stripping out tainted treasury assets, it has not been doing badly.
Core operating profits at the bank this time rose £6m to £301m. Retail banking profits rose £4m to £211m, as personal customer deposit balances rose £800m at A&L. It also opened 154,000 new personal accounts.
Crisis, what crisis?
Things weren't too bad at the bank's commercial arm, either, with profits up £11m to £89m.
The truth is somewhere between disaster and triumph in a banking world that has changed utterly.
Even without Santander's intervention, A&L did not look in need of a rescue rights issue while sitting on a core tier 1 capital ratio of 6.5 per cent.
The bank was decently run, without the excessive reliance on wholesale market funding associated with Northern Rock or the buy-to-let high-risk/high-reward exposure of Bradford & Bingley.
But A&L was still snared in the fallout from the freezing up of the wholesale markets.
Almost overnight the smaller banks became under-capitalised, and they did not have the diversification of earnings streams or international geographic reach to allay some of the pain of the credit crunch.
They have been found out – hence Banco Santander's likely gain. As David Bennett, A&L's chief executive, admitted yesterday, A&L is caught between a slowing British economy and difficult mortgage market on the one hand and, on the other, a badly disturbed financial system that could yet throw up more problems "indiscriminately" for banks.
In that sort of situation, so different from the climate in 1997 when A&L floated on the back of a benign banking climate, you can see why the British bank would grab Santander's hand.
It underlines how fruitless it is for anyone to pretend they can predict the business future.
Many building societies decided in the 1990s that an independent stock market future was a better bet to fund their growth than long-espoused mutuality.
They had some government-bestowed protection from takeover for a period, as long as they abstained from doing the taking over themselves.
But what has happened since? Halifax is virtually the only one that made it as a sector consolidator rather than consolidatee with what many saw as its takeover of Bank of Scotland, although both sides have always insisted it was a merger.
Abbey fell to Santander. Alliance & Leicester looks set to do so too. Northern Rock collapsed into nationalisation. Bradford & Bingley appears to be on the ropes, awaiting a brave bidder.
The truism is that no bank is immune to wider sector pressures, and minnow banks, in particular, certainly cannot plough their own furrow any more.
Most of the former building societies had their niche offerings and, in some cases, grandiose visions.
But in the end, ironically out of America where they had no real presence, they simply got overdrawn at the bank.
A NEAR-90 per cent slump in British Airways' quarterly profits as it is battered by the high oil price shows why chief executive Willie Walsh is gagging for an all-share merger with Spanish carrier Iberia.
A potential all-paper deal, it would not eat into BA's capital reserves, and de- duplication and administrative cost savings would offset some of the aviation sector pain.
The famous business proverb "How do you become a millionaire? Be a billionaire and buy an airline" never seemed more apposite. Airlines' prospects are probably one of the few things that cheer up housebuilders.
SMALL BUT BEAUTIFUL
FLYING BRANDS BULLISH DESPITE 55% SLUMP IN PROFITS
DESPITE a "challenging" market, the board of Flying Brands announced it has "robust fundamentals".
The Jersey-based mail order group yesterday revealed it will not pay an interim dividend after announcing a 55 per cent drop in first half pre-tax profits to £1.2 million.
Sales in the six months to 27 June fell by 5 per cent to £18.9m, the group added.
Flying Brands blamed a number of factors, including lower sales of flowers at Mother's Day and higher operating costs.
In its interim management statement, the group's board said: "The current market environment remains challenging and the board remains cautious on the outlook for the remainder of 2008.
"However, despite the challenges the group faces, we still have robust fundamentals: strong cash generation from our ongoing businesses, good profit margins within our market sector, an under-exploited database and tax benefits of being a Jersey-based operation."
The group, which has a market cap of about £13m, includes Flying Flowers, which sells bouquets through the post, Gardening Direct and Garden Bird Supplies.
BRYAN JOHNSTON OF BELL LAWRIE
ONE TO WATCH
Greggs
3,727p +207p
Scotsman says BUY
GREGGS, for which my firm acts as broker, is a UK-based bakery retailer specialising in sandwiches, savouries and other baker-fresh foods.
The company has more than 1,350 shops throughout the UK, trading under its Greggs and Bakers Oven brands. Greggs's latest results were solid, coming through a difficult six months reasonably satisfactorily. Like-for-like sales increased around 5 per cent, underlining the fact that demand for well-made sandwiches and sausage rolls is pretty resilient. Indeed, it may be that many office workers are now reduced to taking lunch at their desks in these straitened times. There are understandable concerns about the pressures today on the consumer, whilst bakery companies are having to cope with sharp price increases of raw materials. However, Greggs stores tend to be well positioned and are well frequented; certainly there are few signs of any reduction in "footfall". Indeed, Greggs may be capitalising on the potential problems within its peer group as less efficient outfits fall by the wayside.
Notwithstanding the difficult market conditions, Greggs is expected to open at least a further 40 new stores this year, taking advantage, perhaps, of vacant outlets appearing on the nation's high street as the economic slowdown continues. The company is expected to invest perhaps £40 million over the course of 2008, including a new bakery in Manchester. It is also investigating new initiatives, including trials on late-night openings in Yorkshire to test the demand of pubs and clubs attendees. Investors should not be put off by the heavy share price but, instead, consider taking advantage of the recent softening in the rating.
• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.
RUMOUR OF THE DAY
MAHINDRA SILENCE DRIVES RUMOURS
MARKET chatter continued last night after Mahindra & Mahindra, the Indian car maker, refused to confirm or deny it was in talks with General Motors about buying the Humvee brand.
Bharat Doshi, Mahindra's chief financial officer, said: "We are focused on getting the right value and whether it makes sense. In the current environment, you know what the attitude is toward gas-guzzling vehicles. That is all I want to say now."
Doshi said Mahindra, which recently announced the acquisition of the assets of motorbike maker Kinetic Motor, would consider further deals if a "particular asset" made sense at a given time.
Earlier this year, Mahindra lost the race to buy the Jaguar and Land Rover brands from Ford, with larger rival Tata Motors taking the marques.
SCOTS STOCKS
ANALYSTS BACK BRITISH ENERGY BID REJECTION BUT SHARES PLUNGE
BRITISH Energy, the nuclear operator, dropped sharply after French company EDF pulled back from tabling a formal bid late on Thursday, after the Livingston-headquartered board rejected an indicative offer.
Shares dropped 29.5p to 700p, but analysts at Evolution maintained that British Energy had made the right decision not to sell up for a "mess of potage", claiming energy prices meant shares were worth 920p.
Wolfson Microelectronics dropped a further 2 per cent to 110p, despite chairman Michael Ruettgers buying another 100,000 shares in the company on Thursday.
Optos dropped after analysts at Nomura Code Securities trimmed forecasts for the retinal scanning company following Thursday's third-quarter trading statement. Dunfermline-based Optos fell 11p to 146p.
AIM-listed Microemissive Displays plunged to a record low after warning it needed to raise further cash, and that it may be forced to accept an offer for the company. Shares fell 38 per cent to 4.75p on fears of a fire sale of the microscreen maker.
Also on London's junior market, west African-focused oil and gas company BowLeven, which leapt on news of an oil find on Thursday lost 6 per cent to 235p on uncertainty of the significance of the find.
The full article contains 1565 words and appears in The Scotsman newspaper.
