Outlook: Will Arnold's Abbey habit give us the 21st century bank?

Gent hangs up; Housing horrors
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The Independent Online

Can Luqman Arnold encourage the great British public to get the Abbey habit again? Six months into a three-year turnaround and the jury is still out although the bank's half-year results yesterday represented encouraging progress. The shares shot up 10 per cent on better than expected news on wholesale banking disposals. That has crystallised £144m of losses but investors are looking beyond this to the day when Abbey National will be a simple mortgage and savings bank once more.

Mr Arnold admitted with refreshing honesty back in February that UK consumers would have no need for Abbey National any more if it remained merely a reflection of the Big Five. It needed to be different in price or in service, he said. So the "Big Idea" is to develop a kind of "New Abbey", a bank which is somehow different from the other high street majors although Mr Arnold was elusive yesterday on what these differences might be. Curiously he refuses to rule out a possible name change, though it is hard to see the current one being jettisoned altogether.

The major investments at the moment are in new IT systems, an overhaul of the product range and a huge increase in staff training. The big push will come later this autumn with the so-called re-branding exercise which will see Abbey National repositioned as a bank which competes on customer service rather than price. Mr Luqman talks about "tone and behaviour" and about "how we deal with customers".

There will be a move to an advice model where customers are treated to "guided choice" (ie guided selling) of savings and loan products. It sounds like a move upmarket though Mr Arnold says he remains happy for Abbey to be a broadly based mass-market bank.

It all sounds worryingly reminiscent of some of Sainsbury's strategic rethinks over the years. Anxious to avoid the heavy price artillery of Tesco and Asda, Sainsbury's has repeatedly tried to establish itself as a kind of Waitrose for the masses where good food costs more, to invert its slogan. It has never worked and Sainsbury's has found itself caught in the middle ground, where it is neither the cheapest nor the perceived provider of highest quality.

That Mr Arnold has hired help from such luminaries as Vittorio Radice, the former Selfridges chief executive who is reinventing Marks & Spencer's home furnishings business, is an encouraging sign.

Maybe this will enable Mr Arnold to deliver the 21st century bank with better service and a genuinely new way of operating. But whether customers will pay for it with higher prices is open to question.

Gent hangs up

As he settles down to watch the opening day's play at the England v South Africa test match at Lord's today, Sir Christopher Gent might consider his own personal scorecard. After pulling stumps on a Vodafone career spanning 18 years, the self-confessed cricket nut might while away a few moments checking his averages and, maybe, nominating a position for himself in the all-time UK corporate batting order.

So how will it read? On the positive side he built a truly global empire in less than 20 years. Sir Christopher inherited a minor part of the old Racal and, under the Vodafone name, turned it into a worldwide powerhouse with 122 million customers across 37 countries. Vodafone is now ranked as the 14th largest company in the world by stock market value.

He also built a powerful brand. Sir Christopher stamped his company's name across the world map in a way few UK chief executives have matched. And he did it via some of the most audacious takeover deals in British business history. Around $300bn was spent on acquisitions including a thumping $180bn on Mannesmann. That broke the mould on cross-border European acquisitions, and much else besides.

The negatives? The acquisition spree was largely conducted at the peak of the stock market bubble and resulted in a huge destruction of value. It is worth pointing out that Vodafone is worth rather less than the sum it spent on the Mannesmann deal alone. The share price too has lost around 70 per cent of its value since the peak. However, Sir Christopher can justifiably say this performance is better than BT's and that BT shareholders have also had to suffer a rescue rights issue, a change of management and a strategic decision to exit the mobile business and then get back in again.

The second criticism is that Sir Christopher was clearly uncomfortable against spin bowling. He became remote from the media (though he had come round a little bit by the end), having been consistently wrong-footed over the googlie issue of executive pay. His Geoff Boycott-style forward defensive prod on the subject regularly made him and the rest of the board look uncomfortable. The £10m bonus following the Mannesmann deal, which was eventually taken half in shares, marked the low point of this debate, though the Vodafone pay row still became an annual feature of the business calendar. It would be a shame if Sir Christopher were to remembered as much for this as for his corporate achievements.

Sir Christopher leaves the crease with two issues outstanding. Perhaps the most crucial is the stake in Verizon, the US telecoms business where speculation continues that Vodafone may decide to sell out. The other issue is personal. At 55 Sir Christopher is of an age when many chief executives are getting into their jobs rather than getting out of them. He has lined up a boardroom role at Lehman Brothers but will have plenty of spare time for other things. He is unlikely to be short of offers.

Housing horrors

As Mahatma Gandhi said, freedom is not worth having if it does not include the freedom to err. However, there are many areas of human activity where such unconstrained liberty has huge unintended consequences.

Any homebuyer who lived through the late 1980s will have suffered - or know someone who did - when the mortgage lending boom finally came off the rails. Almost a quarter of a million homes were repossessed by the banks between 1990 and 1993 as interest rates and unemployment soared.

On the surface there is little similarity with the benign situation now. Only one in 2,500 are repossessed. Mortgage rates are at a 50-year low while a record number of people are in work. Is it any surprise that Britain is in the grips of a 1980s-style lending boom?

The Financial Services Authority, which is not scarred by association with the last crash, has decided lenders should issue borrowers with a form outlining the implications of their decision. The draft version includes a warning that interest rates might rise while the lenders want to add a reference to the danger of losing one's livelihood. This is the mortgage equivalent of the health warning on cigarette packets, but will it really stop a keen home-owner snapping up a low-cost mortgage from that nice man at the building society?

Unfortunately one way to prevent a crash is to break Gandhi's dictum and protect people from themselves by stopping reckless lending. This might involve a statutory limit on the amount someone can borrow in proportion to their income, for instance. This would run into opposition from the industry, which can rightfully point to the flexibility a deregulated mortgage industry has provided.

Of course, there are already many people barred from getting a mortgage, simply because of the high costs of housing. This group, such as first-time buyers, nurses and teachers would at least will be helped by yesterday's decision to create 120,000 new homes in the east London corridor.

This shows that boosting supply rather than curbing demand may be the more sensible way forward.

n.cope@independent.co.uk

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