Alliance & Leicester may cut dividend by 30 percent

(Reuters) - Collins Stewart forecast a 30 percent dividend cut at Alliance & Leicester for 2008 and 2009, and said earnings will likely be materially weaker than was previously estimated for the bank due to a 10 percent fall in the mortgage book and a more than 60 percent fall in gross lending.

"Including write-downs, the (earnings) picture is even worse and we do not believe the bank will be rewarded for paying an uncovered dividend in 2008," analyst Alex Potter said.

Margins are "massively" more positive than it was 12 to 18 months ago but firms with better funding abilities are taking market share at the expense of operators like Alliance & Leicester ALLL.L, Potter noted.

On Tuesday, Britain's seventh-largest bank took a 192 million pound hit to profit from toxic assets, even as it offered reassurance on credit quality and hinted it had no plans to follow larger rivals Royal Bank of Scotland (RBS.L) and HBOS HBOS.L in a rights issue.

"Cutting the dividend due to writedowns (at least in part) is a departure from most peers who have viewed writedowns as a rights issue driver," Potter said, noting that management was now saying writedowns would be a part of the dividend decision, differing from its February announcement that 2008 dividend would be maintained at 2007 levels.

Alliance & Leicester can avoid a rights issue but a dividend cut is needed to at least show some improvement in capital ratios before 2010, Potter added.

Shares of the company were trading down more than 4 percent to 440 pence by 8:55 a.m. on the London Stock Exchange.