Abbey able to reward faithful

INVESTMENT COLUMN

Abbey National has had plenty of doubters in the City following its recent agreed bids for National & Provincial Building Society and First National Finance Corporation (FNFC). Many felt that Abbey was overbidding, especially for FNFC's consumer credit business, which analysts argued made the previously rock-solid Abbey a more risky institution.

Put together with the continuing gloom in the UK housing sector, yesterday's interims might have been expected to test the persuasive skills of Lord Tugendhat, Abbey's chairman, and his chief executive, Peter Birch. Far from it. The rise in pre-tax profits of 14 per cent, and the 27 per cent hike in the interim dividend, were warmly received.

Even more so was Mr Birch's assurance that, after the two latest purchases, Abbey's key Tier 1 capital ratio, the recognised measure of assets against loans, would still stand at 8 per cent - double the regulatory minimum.

Abbey's shares rose another 3.5p to 521.5p yesterday, after a good run in the last week, as the market focused on Abbey's success in raising life assurance profits by 11 per cent against a dismal industry background. It seemed less concerned by Abbey's admission that the housing market would remain in the doldrums for another two to three years.

Its share of gross mortgage lending in the first half of 1995 was down to 9.7 per cent from 11.1 per cent in the second half of 1994, which had the effect of reducing net lending from 9.5 per cent to 4.4 per cent, but new mortgage applications recovered towards the end of the period.

Overheads rose from pounds 377m to pounds 412m, but do not look like growing at the same rate. Indeed, Abbey should succeed in hitting its target for a 40 per cent cost to income ratio by 1997. It stands at 44 per cent now, against a high street banking average of around 60 per cent, and should end the year lower than in 1994.

The market puts Abbey on a 1995 p/e of 10, against an average of 9.7 for the sector, making it good value on earnings grounds. The bank gave a dividend forecast in all but name yesterday, and the annual payout should rise by 22.5 per cent to 21.75p. On that basis, a yield of 5.2 per cent compared to a sector average of 4.7 per cent is also attractive.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test