Incorporated: 1853 as The Leicester Permanent Building Society
NAIC: 522110 Commercial Banking
SIC: 6021 National Commercial Banks; 6022 State Commercial Banks; 6029 Commercial Banks Nec; 6081 Foreign Banks - Branches & Agencies
Alliance & Leicester plc (A&L) is one of the United Kingdom's leading banks. With total assets of nearly £69 billion ($117 billion), A&L holds the number five position. The former building society offers a full range of retail banking services, including mortgages and personal loans, life insurance (through Legal & General) and other insurance products (through Zurich), investment products and services, and credit cards. The bank operates on a national level with branch offices throughout the country and a network of 2,500 ATMs.
The company also provides a range of financial services through the 14,000-branch British Post Office. Altogether, A&L counts more than 5.5 million retail customers, with total deposits of nearly £23 billion ($40 billion), and a 3.5 percent share of the total U.K. mortgage market. In the early 2000s, A&L launched a drive to expand its commercial banking operations, targeting especially the midsized and small business sector, with a range of lending, cash management and other financial services. The company serves more than 76,000 corporate accounts and claims a 20 percent share of the U.K. High Street cash management market.
Still based in Leicester, A&L has been the subject of takeover rumors since the middle of the first decade of the 2000s; in 2006, the bank was rumored to have started talks with France's Credit Agricole, amid the overall consolidation of the European banking sector. A&L is listed on the London Stock Exchange and is led by chairman Derek Higgs and CEO Richard Pym. In 2006, the bank generated an operating profit of £585 million ($995 million).
19th-Century Building Society Origins
Although Alliance & Leicester was created only in 1985, the merger of two of the United Kingdom's largest building societies gave the bank roots in the great wave of the building society movement of the mid-19th century. The earliest building societies, known as "terminating" societies, had been founded in the late 18th century as a pooling of resources by groups of artisans in order to build their homes. After homes had been built for each member of the group, the society was then disbanded.
The industrialization of Britain in the 19th century created, however, a demand for a new type of mutual aid society. The rising number of low-paid urban workers brought about the need for massive housing construction in the country's major towns and cities. At the same time, the Great Reform Act of 1832 had established new rules for voting rights, opening suffrage to most property owners for the first time. The new legislation in turn stimulated the formation of new building societies, which led to the first official recognition of the movement in 1836. Into the next decade, an increasing number of building societies had begun taking deposits from people who already owned property. By 1845, the first "permanent" building societies had been established.
The middle of the century saw a dramatic increase in the number of urban workers. This new class of workers made up for their relatively low wages through their massive numbers. This fact enabled the new permanent building societies to shift their home-building model from providing direct funding for building construction to providing its members with loans, to be repaid with interest. The building society movement gained further momentum after Arthur Scratchely published the Treatise on Benefit Building Societies in 1847. This work provided a framework for the operation of permanent building societies, including interest tables and schedules for loan repayment and other pertinent information. Backed by this document, the building society movement rolled out a variety of new services, and especially savings accounts. The new services enabled the building society to compete against the country's traditional banks, which remained largely inaccessible to much of the population.
The second half of the 19th century saw a boom in the permanent building society movement. At its peak, the movement counted more than 2,700 building societies operating in the United Kingdom. The vast majority of these were permanent building societies, and most were locally based operations. Among them were the three major components of the future Alliance & Leicester. The earliest of these was the Leicester Permanent Building Society, founded in that town in 1853. Two decades later, Leicester's growing housing market spawned another building society, the Leicester Temperance & General Permanent Building Society, created in 1875. By then, another major component of the future Alliance & Leicester was formed, known as the Brighton & Sussex Equitable Building Society, founded in 1863.
Already a potent financial force in Great Britain, the building society sector nonetheless remained unregulated until the 1870s. This changed in 1874, however, with the passage of the first Building Society Act that year. Among other things, the new legislation placed strict limits on the range of operations permitted to building societies. As a result, most building societies focused their operations on the home mortgage and savings sectors. Subsequent legislation provided further limitations for the building society, in part to stimulate consolidation among the industry. The first wave of consolidation occurred at the turn of the century, and by the outbreak of World War I, the number of building societies had dropped to 1,700.
The consolidation of the industry was further stimulated by the difficult economic conditions during the Depression era and lasting through World War II. The Brighton & Sussex Building Society had distinguished itself in the 1930s as a major driver of the industry's consolidation, launching a major expansion program. By the end of World War II, that building society had absorbed a large number of local organizations. In recognition of its own transformation, the building society adopted a new name, The Alliance Building Society, in 1945. The rebranding of its branch network established the society as one of the movement's first national players.
Both Leicester societies joined in on the consolidation as well (although the two were to merge together only in 1974) and starting from the 1940s, Leicester Permanent set up its own national network. A new stimulus to the consolidation of the industry came with the passage of the Building Society Act of 1960, which established new lending limits, and in turn was taken up into the Building Society Act of 1962, which brought together all existing legislation governing the sector. The consolidation of the industry took on added steam, creating a smaller number of major financial groups. Alliance by then had become one of the country's largest building societies, claiming a place in the top ten, with total assets topping £100 million in 1963. Both Leicester Permanent and Leicester Temperance had grown strongly as well, with the former ranking ninth, and the latter claiming the 19th position.
Merging Majors in 1985
By the mid-1970s, the consolidation of the building society movement had reduced the field to just 450 societies. This process was further stimulated by the protracted British recession. By creating a smaller number of larger building societies, the societies were able to become more competitive, especially by accepting lower margins on their mortgages and other products. Leicester Permanent and Leicester Temperance joined in the new round of consolidation, announcing their merger in 1973 and completing it the following year. The move created the United Kingdom's seventh largest building society, and represented the largest single merger in the industry to date. The fact that both societies were in the same community helped ease the transition, while helping to eliminate many of the redundancies created by having two major building societies in the same local market.
The next step in the creation of the future Alliance and Leicester came in 1985, when the Alliance and Leicester building societies agreed to a new merger. Setting a new record for the size of the merger, the combined building society became one of the United Kingdom's top five, with assets of more than £7 billion.
The A&L merger came ahead of new legislation that transformed the United Kingdom's building society movement. The passage of the Building Societies Act of 1986 dropped many of the long-standing restrictions placed on the sector. Under the new legislation, building societies were allowed to adopt many of the products and services available at commercial banks. This enabled building societies to expand beyond mortgage and savings accounts services to compete more directly with banks. At the same time, building societies were granted the right to convert their status from building society to shareholder corporations with full banking privileges. The effect of the new legislation was dramatic--the long series of mergers leading up to its enactment had reduced the number of building societies in the field to just 200 by mid-decade. By the beginning of the 1990s, only 100 building societies remained in operation.
By then, too, the British government had pushed ahead with its plans to privatize the Girobank. That body had been established in 1969 through the national post office system. Originally known as the Post Office Giro, the new service was designed to provide banking services to the vast swath of the British public that remained underserved by the traditional banking market. The Girobank started out as a deposit-taking service for private customers, then added services to the corporate market in 1972. The passage of the Post Office Banking Services Act in 1976 further expanded the Girobank's range of services and helped establish it as a major force in the British banking scene. By the time of its privatization, Girobank had taken on most of the aspects of a typical commercial bank, with the difference that the bank continued to operate through the 14,000 offices of the British postal system.
Alliance & Leicester emerged as the frontrunner in the bid to privatize Girobank, and in 1990 completed the acquisition. The takeover marked the first time that a clearing bank had been acquired by a building society; more typically, the United Kingdom's banks had begun buying building societies as they adopted shareholder status, in order to gain access to the building societies' mortgage and savings account operations. Alliance & Leicester retained its private building society status for the time being, while expanding its range of products and services. In 1989, for example, the group established a new subsidiary, Alliance & Leicester Personal Finance Ltd., enabling the society to enter the market for unsecured loans.
Takeover Candidate in the New Century?
The building society also moved to integrate Girobank into its own operations. This process was given a boost with the passage of the Alliance & Leicester (Girobank) Act of 1993, which allowed the society to merge the personal account data of both bodies. By 1994, the personal finance operations of both Alliance & Leicester and Girobank had been merged into a single operation. Also that year, the group launched a new 24-hour telephone banking service as part of its Alliance Current Account service.
The society continued to use the Girobank name through the decade, boosting the operation by targeting the United Kingdom's retail sector with the launch of debit and credit card transaction processing services. Girobank also made an acquisition, of Sovereign Finance plc, a specialist in leasing and other financing.
Alliance & Leicester in the meantime had begun the conversion process, announcing its intention to abandon its building society status in 1996. By 1997, the group had completed its conversion, transforming itself into a full-fledged, publicly listed bank. The "new" Alliance & Leicester immediately took up a position on the FTSE 100 index.
The bank continued to roll out new services and products into the start of the 21st century. In 1997, for example, A&L launched a cash-back credit card, awarding customers with money for their purchases using the card. The following year, the company added Internet-based credit card, loans and account application and access. The group's Internet presence was further enhanced in 2000 with online bill payment, as well as a range of online services for the small business market. The latter effort came as part of A&L's rebranding of its small business division under the Alliance Business Banking name.
The early 2000s marked the start of a new era in the European banking market, as the single currency Euro stimulated a new consolidation of the sector, now crossing international lines. As part of its effort to keep up, A&L began forming alliances, such as its 2001 agreement with Legal & General. In this way, A&L boosted its range of products, adding L&G's insurance and other products. By 2003, the company had also completed the integration of Girobank, which was rebranded under the name Alliance & Leicester Commercial Bank.
Increasingly, however, A&L appeared to be a prime takeover candidate. By the middle of the first decade of the 2000s, A&L had become a major player in the U.K. market--yet the group remained quite small compared to the newly emerging major European groups. Rumors of a possible takeover surfaced at the middle of the decade, and by 2006, a new and possibly more serious suitor appeared, when the bank revealed that it had been approached by France's Credit Agricole. In the meantime, A&L continued to build its business. With total assets of £69 billion, and gross profits of £585 million, A&L had become a true heavyweight in the U.K. banking sector.
Principal Subsidiaries
Alliance & Leicester Commercial Bank plc; Alliance & Leicester Commercial Finance plc; Alliance & Leicester International Ltd.; Alliance & Leicester Personal Finance Ltd.
Principal Competitors
Abbey National plc; Nationwide Building Society; Northern Rock plc; Cheltenham and Gloucester plc; Bradford and Bingley plc; Britannia Building Society; Portman Building Society; Bristol and West plc; Yorkshire Building Society.
Further Reading
"A&L Strengthens Web Service with Pounds 10m Investment," Marketing, April 8, 2004.
"A&L Targets Small Businesses," Precision Marketing, May 12, 2006, p. 5.
"A&L Uncovers Shifting Debts," Financial Adviser, February 15, 2007.
Bettelley, Clare, "Target Practice," Financeweek, May 30, 2006.
Cope, Nigel, "Alliance Finds a Plum Present for Knight," Independent, December 19, 1996, p. 22.
Corcoran, Jason, "Alliance & Leicester Ready for the Change," Financial Adviser, October 16, 2002.
Merrell, Caroline, "A&L Cautious as Members Back Change," Times, December 11, 1996, p. 23.
"Where Two Heads Are Better than One," Acquisitions Monthly, June 1999.
— M. L. Cohen
