Abbey profits up as it ignores loan wars

Abbey National yesterday shrugged aside its inability to increase its tiny share of the new mortgage market in the past six months by announcing a 16 per cent rise in first-half pre-tax profits of pounds 558m.

The bank said its 3 per cent of new lending had been caused by its refusal to enter the mortgage price war by offering heavily discounted home loans.

It pointed to a substantial increase in new mortgage business, up 8 per cent, by National & Provincial, the building society it has just taken over. The acquisition of N&P increased at a stroke the Abbey's share of the mortgage market from 12.1 to 15 per cent.

Lord Tugendhat, chairman at the Abbey, said of the bank's profits rise: "This has been achieved against a background of competitive mortgage and savings markets. Our results therefore give us confidence that we are pursuing the right strategies. We aim to strengthen Abbey National's market position in UK personal financial services by consolidating our standing in the mortgage and savings market.

"We will also continue to diversify profit streams away from traditional mortgage and savings activities, providing a broader range of products and services to customers."

Lord Tugendhat said one sign of this diversification was that Abbey National had boosted profits from outside its core savings and mortgage areas from virtually nothing seven years ago to 42.5 per cent. This was ahead of the 1997 target of 40 per cent set in March last year, he added.

Abbey National Life, the bank's own life and pensions business, reported record profits, up 38 per cent, on the back of an 8 per cent increase in annualised premium income. This included half-year sales of pounds 230m for Abbey's first PEP, launched last year.

Abbey's treasury operation contributed pounds 129m to group profits, an 18 per cent increase. Consumer credit profits rose 153 per cent to pounds 43m, boosted by the Abbey's acquisition of FNFC, a large credit provider.

However, Lord Tugendhat admitted Abbey had suffered a net outflow of savers' funds in the first half of 1996. "This is mainly to do with Tessa maturities," he said. "Out of the pounds 4bn mortgage book, some pounds 3bn matured earlier this year. Despite our retention of two-thirds of this, many of our customers have chosen to spend the proceeds - fuelling the kind of sales we have seen recently."

Margaret Schwarz, the bank's chief economist, said the Abbey had been affected by its disproportionate 14 per cent market share in the Tessa market in 1991, which it did not expect to hold entirely at maturity earlier this year.

Abbey National's cost-to-income ratio dropped to 41.6 from 44.6 per cent at the same point last year. Lord Tugendhat said the bank aimed to bring the ratio below 40 per cent.