Ailing Abbey close to hiring new chief executive

Abbey National is close to appointing a new chief executive, with Lord Burns, the chairman of the troubled bank, due to interview five candidates on Tuesday.

The bank has one other candidate, who will be interviewed on another day. Abbey has drawn up a shortlist of six prospective new leaders with the help of Jan Hall, a partner at the headhunters Spencer Stuart.

Those on the list are thought to include most people who have already been considered as likely successors to Ian Harley, Abbey's chief executive who stood down in July following criticism of his leadership and the emergence of a series of problems with Abbey's balance sheet.

Favourites for the job include John Stewart, the deputy chief executive of Barclays, and Gordon Pell, the respected head of Coutts, which is part of Royal Bank of Scotland.

Adam Applegarth, the chief executive of fast-growing Northern Rock, and Eric Daniels, head of retail banking at Lloyds TSB, are also thought to be likely contenders.

Abbey said recently it could take until the end of the year to conclude its recruitment of a new chief executive but it seems the process is happening more quickly than it predicted. It would not comment on next Tuesday's set of interviews, which will have to be fed back to the board by Lord Burns.

Abbey's shares took a fresh battering, closing down 6 per cent at 505.5p, after speculation intensified that the bank would have to write down as much as £1.2bn at its insurance business, Scottish Mutual, this year due to the falling value of its investments.

The investment bank JP Morgan Chase published a note warning Abbey was under pressure to do this after further drops in the stock markets in the last month.

JP Morgan also speculated Abbey would cut its dividend. Abbey's dividend yield was 5.83 per cent in 2001, the highest among UK banks.

"The company's capital position and the fate of the dividend are now the key issues for the stock. We have pencilled in a dividend of 25p for 2003, a 50 per cent cut from the dividend of 50p," JP Morgan said.

Abbey is understood have injected up to £300m of fresh funds into Scottish Mutual to bolster its capital in the current falling markets. This follows an earlier injection of £150m.

Abbey has had to deal with an avalanche of bad publicity this year about its wholesale banking arm, which has emerged to have a black whole in its balance sheet due to losses on risky investments in areas such as telecoms.