The bank admitted its foray into estate agencies had been a mistake, but defended the decision as a sensible one at the time. The announcement of the sale of the 355- branch network came as profits before tax fell pounds 54m to pounds 564m last year after provisions against bad debts, which more than doubled from pounds 155m to pounds 322m. The cost of mortgage repossessions in the UK shot up pounds 96m to pounds 188m.
None the less, the former building society is paying a final dividend of 7.7p for an annual total of 11.5p, up 9.5 per cent. Its shares fell 12p to 387p.
The about-turn on the estate agencies came after a strategic review that Sir Christopher Tugendhat, chairman, said had concluded that 'the business no longer fulfils the objectives for which it was originally acquired'. The decision to sell has been made despite signs of a better outlook in the housing market.
He said the essential reason for buying the agencies was to 'defend our flank' and safeguard Abbey's market share of mortgage lending and insurance commissions.
This was at a time when a growing threat was seen from other financial organisations buying up agencies in large numbers.
But the changes Abbey had feared did not materialise and the new entrants did not take over the distribution of mortgages and other products.
Abbey's own business had also changed, with stronger distribution channels, a facelift for the UK branch network, improved telephone marketing and moves of its own into life insurance. Cornerstone has been bringing only pounds 500m a year of mortgages to Abbey. Peter Birch, chief executive, added: 'We had no alternative to defend our market share at that time.'
Sir Christopher said it was hoped to sell Cornerstone as a whole, though he conceded a break-up by region was possible. Goodwill has been written down by pounds 126m to pounds 15m and the agency has assets that will be sold.
There was a reorganisation charge of pounds 12m and 59 branch closures last year. Mr Birch said: 'We are expecting to get a lot more than pounds 15m.'
Cornerstone made a trading loss of pounds 20m last year after a loss of pounds 19m in 1991 on revenues of pounds 52m. Cumulative losses are now pounds 88m, plus pounds 138m of write-downs and reorganisation charges.
Mr Birch said business 'coming in our front door at the moment is at a substantially higher level than this time last year'. The improvement had continued for three months, and he expected 'some modest recovery' in house prices this year.
The bank also delivered a challenge to the big insurance companies by disclosing that it is insuring itself against losses on home repossessions. It has pulled out of talks with its previous insurers, Legal and General, Royal and Commercial Union, because the terms and conditions were unacceptable.
City analysts were disturbed by Abbey's admission that, despite the possibility of a continuing high level of repossessions, it had not yet completed negotiations to reinsure this risk in the commercial insurance markets. Cover against the cost of repossessions is being provided by a captive - or in- house - insurance company that is being set up.
Average losses in selling repossessed properties rose from pounds 12,000 to pounds 18,400 over the year. Repossessions continued to decline in recent months, but the total number Abbey held on its books increased over the year.
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