A&L writedown hits profits

By Steve Slater

LONDON (Reuters) - Alliance & Leicester suffered a double blow from global financial market turmoil on Wednesday, warning a big rise in funding costs would derail 2008 profit after a writedown on risky assets hit 2007's results.

A&L ALLL.L, Britain's seventh-biggest listed bank, surprised investors by estimating funding will cost about 150 million pounds more this year than under normal circumstances as it takes precautions to avoid the crisis that hit rival Northern Rock NRK.L last year.

The news, alongside a 30 percent drop in 2007 profits, a gloomy outlook into 2009 and dividends put on hold sent the bank's shares down over 18 percent to a record low.

A&L suffered a 185 million pound writedown on its exposure to assets that have been tarnished by the U.S. sub-prime housing crisis -- in line with guidance three weeks ago. That cut its 2007 pretax profit to 399 million, below an average forecast of 416 million, according to Reuters Estimates.

The bank reported higher funding costs of 23 million pounds in the fourth quarter and said 2008 costs will be 150 million more than usual as it had "taken prudent measures" to increase its level of liquidity and the maturity of its wholesale funding, due to the risks of short-term balance sheet financing.

"That's come at a cost, but we feel it's the right thing to do to pay the price for security," said Chris Rhodes, the finance director who is also standing in as chief executive.

"We're now talking about a very strong funding position that takes us into Q1 2009," he told reporters, but said some of the higher costs will be repeated in 2009.

BIGGEST FALLER