ALLIANCE and Leicester (A&L) yesterday reported a rise in profits and stole a march on high street rivals by claiming a greater share of new business.

The group has seen its share price rally from lows of 814p-a-share four months ago to a high of 1150p yesterday morning.

James Rainbow, divisional director at Wise Speke investment management, in Newcastle, said: "Ever since announcing in early December that the bank would exceed analysts' expectations, a number of investment houses have upgraded their earnings forecasts and this has enticed buyers.

"Mergers and acquisitions in the banking sector is also very much back in vogue and Alliance and Leicester has always been seen as an attractive takeover target.

"The fact that mortgage lending has not slowed by as much as some had anticipated late last year, when the housing market slowed, means that figures for the industry in general have been good.

"For the moment, I think all the good news, barring a takeover, is in the price."

The group said revenues from its four key product areas in retail banking, including mortgages and current accounts, rose by more than five per cent during a year when operating profits improved to £548m from £540m.

Net mortgage lending hit a record high of £4.9bn to give the group a market share of 5.4 per cent, while 254,000 current accounts were opened to boost its customer base to 1.52 million.

However, A&L reported a mixed picture on credit quality, with the proportion of households falling behind on their mortgage repayments dropping to 0.64 per cent and below the industry average at a time when arrears on unsecured loans such as credit card bills rose to 5.1 per cent.

A&L revealed that costs fell by £21m last year and it was helped by more customers banking by telephone or online, giving it a market share in that fast-growing sector of 20 per cent.

Its total income was £1.39bn last year, putting it close to the £1.37bn that it turned over the previous year.

But revenues growth was expected to accelerate at a faster rate this year than previously and that should exceed any increase in its cost base, the bank said.

"We anticipate that growth from existing business lines and the planned new developments will generate fee-based revenue streams," A&L said.

A&L converted from a mutual building society to a bank in 1997, becoming a listed plc, and members became shareholders.