Alliance begins moves to buy mutual life firm

Alliance & Leicester is aiming to take over a mutual life company after its own stock market flotation next year, as part of its strategy to build itself into a key financial services player.

The building society has held talks with several likely targets, although sources said yesterday that Alliance had not yet narrowed down the shortlist. The society's priority was to proceed with its flotation in the spring of 1997, the sources added.

Alliance launched its own life operation earlier this year, following the ending of its tie with Scottish Amicable.

A senior source said, however: "From the point of view of a mutual, they can see that those which have got together with former building societies have done well out of it. They would be able to market more effectively to millions of our customers, while our name would become better known to independent financial advisers, where we are not so well known."

The society's takeover ambitions came as it unveiled operating profits of pounds 192m for the first six months of 1996, up 18 per cent on the same period last year before conversion costs. Pre-tax profits reached pounds 183m, up 12 per cent on 1995.

Peter White, group chief executive at Alliance, said: "The results indicate that [we have] created a solid base for our proposed conversion and flotation. Excluding conversion costs, over a third of operating profit came from non-traditional businesses, making the Alliance & Leicester extremely successfully diversified. This strategy of diversification is likely to continue in the future."

He added that while the society aimed to diversify through organic growth and expansion of its existing operations, it was also in the market for potential acquisitions after conversion.

Alliance's profits came despite a drop in gross mortgage advances to pounds 927m in the first half of 1996, down from pounds 1.7bn in 1995. Net advances, after redemptions and early repayments, were just pounds 113m in the first half of the year.

Mr White rejected suggestions that Alliance's refusal to compete heavily in the mortgage market was determined by the society's need to maximise profits ahead of demutualisation.

"This was a commercial decision for us, based on our feeling that we were not interested in following the price war," he said. Mr White added that another factor had been the re-organisation of mortgage lending away from local branches and into a smaller number of regional centres, affecting its intermediary business.

Girobank, the society's money transmission subsidiary, contributed pounds 30m to the profits figures, while it increased its handling of cash and cheques by 8.6 per cent to almost pounds 36bn. However, the company aims to move away from its heavy reliance on cash transmission as part of its business, and hopes to expand its electronic credit and debit card payment systems.

About 3.5 million borrowers and savers will receive documents in November detailing the benefits of conversion and likely share handouts. This is likely to be based on a basic share handout for borrowers, plus extra shares depending on savings levels with the society. Voting will take place in December, with hoped-for final approval from regulators in the early spring. Shares will be mailed out shortly afterwards.