Credit Agricole considers takeover of A&L

Crédit Agricole yesterday admitted it was sizing up a potential bid for Alliance & Leicester, (A&L) the UK mortgage bank valued at £5.1 billion (€7.5 billion).

The French bank, which last week said it had a €15 billion fund for acquisitions, said it was assessing A&L but that its evaluation was at a preliminary stage.

"Crédit Agricole has not made any proposal to A&L and there can be no certainty that any proposal or offer will be made," it said. The statement, which sent A&L's shares up 28p to £11.43, comes after weeks of speculation that Crédit Agricole and other European banks have been circling A&L.

It is thought that the UK take-over panel forced Crédit Agricole to make the announcement yesterday. Citigroup, the US investment bank, is thought to have been examining a possible bid on Crédit Agricole's behalf, although it has not been formally mandated. Georges Pauget, chief executive of Crédit Agricole, has made it clear the French bank is looking at Germany, Spain and the UK for acquisitions.

Crédit Agricole executives are thought to have met Richard Pym, A&L chief executive this year.

A&L is seen as one of the few remaining acquisition opportunities in the UK market that is large enough to give scale to a potential bidder.

The former building society has 250 branches, 5.5 million customers and 3.4 per cent of the UK mortgage market.

However, the bank is expensive and trades on 15 times prospective earnings. A&L's return on equity in 2005 was more than 21 per cent. This makes it tough for an overseas bidder to justify paying a premium if there are no overlapping operations.

A&L said yesterday it had noted the announcement and remained focused on delivery of its strategy. An approach for A&L could flush out other interested bidders. Santander, Spain's largest bank, which owns Abbey, is understood to have looked at buying A&L. However, it has indicated it is more interested in business banking assets.

Jason Napier, analyst at Deutsche Bank, said: "We have always said if an overseas bidder was going to buy in the UK, A&L is the most likely target."