A&L takes 192 mln pound hit and shares fall

By Clara Ferreira-Marques

LONDON (Reuters) - Alliance & Leicester took a 192 million pound hit to profit on Tuesday from toxic assets, as analysts warned that sum could all but wipe out first-half profit and prompt a dividend cut.

The country's seventh-largest bank offered reassurance on credit quality and hinted it had no plans to follow larger rivals Royal Bank of Scotland and HBOS in a rights issue, but the market saw little comfort in Tuesday's update.

Shares in the bank, which have underperformed rivals by more than 30 percent this year fell 11.7 percent by 10:58 a.m. to 450.5p, making it the top FTSE 100 loser, as it was battered by an uncertain outlook and fading takeover speculation.

"They don't have to do a rights issue, they are fully funded until the second quarter of 2009 -- but having said that, what is going to drive the share price?" said MF Global analyst Mamoun Tazi.

"There are no catalysts in the immediate future, lending is slowing down, margins are under pressure and we'll only start to see the benefit of higher volumes into the second half."

A&L said in Tuesday's trading update that writedowns totalled 391 million pounds, higher than analysts had expected, but 199 million of that total accounts for the impact of fair value changes to reserves and so will not hit the bank's profit.

Of the remaining 192 million pound hit -- a hefty dent compared with last year's 295 million first-half core operating profit -- 139 million is from losses on its structured debt investments, including structured investment vehicles.

A&L had announced a 185 million pound hit when it published 2007 results in February -- well below those taken by larger lenders but already prompting concerns over its exposure to structured debt and the prospects for its dividend.