Abbey's shares sank by 100p to close at 1220p following a bout of profit- taking by the City.
Ian Poulter, analyst at Williams de Broe, said: "The figures were slightly poorer than we expected. The whole lot - incomes, costs and provisions - came in slightly worse than we might have hoped for."
Profits before tax rose by 16 per cent to pounds 1.4bn, although this was before exceptional charges of pounds 145m resulting from last year's changes to the corporation tax regime.
Expenses leapt by 15 per cent to pounds 1.2bn, largely because of the costs of integrating recent acquisitions and investing in new systems. However, Abbey's cost-income ratio, at 43 per cent, is still lower than many of its high street rivals. Ian Harley, chief executive designate, said he intended to drive the ratio below 40 per cent before the year 2000.
Unlike a number of rival banks such as the Woolwich and Barclays, Abbey has no immediate plans to return capital to shareholders.
Mr Harley said: "We will be watching developments and in the absence of sufficient organic growth and acquisition opportunities, we will return capital to shareholders."
On the subject of acquisitions, Mr Harley said Abbey's main areas of interest were in life, pensions and retail fund management. He said Abbey was not going to buy a European bank but would be interested "in buying a [UK] current account book".
A number of analysts called Abbey's performance in the new mortgage market "disappointing".
The bank's share of new mortgage business edged up to 3.4 per cent in 1997, but many in the City were hoping for a figure nearer to 4 per cent.
Mr Harley said that after a poor first half, Abbey's share of new mortgages had picked up in the second half, and there was plenty in the pipeline going forward.
Mr Harley takes over from Mr Birch next week. Mr Birch is retiring after 14 years in charge of Abbey National.
At an analysts' meeting, Lord Tugendhat, Abbey's chairman, said Mr Birch had "transformed the organisation".