Peter Ellwood, the bank's chief executive, blamed a "fundamental restructuring of the market" for the poor sales figures. The pension fund transfer scandal was also damaging, with TSB forced to provide pounds 38m against possible pension transfer claims.
The TSB group halved provisions against sour loans to pounds 67m and cut costs by 2 per cent, so that pre-tax profits for the six months to April 1985 actually rose by a fifth to pounds 271m.
The bad news on TSB's key "bancassurance" activities, however, hit the share price, which fell 3.5p to 249.5p.
Comments by Peter Ellwood, TSB's chief executive, that any improvements in that market were some time off also prompted analysts to worry about other life assurance and unit trust players.
TSB's profits before bad debt provisions fell 6 per cent and interest income was flat. Overall income fell from pounds 958m last time to pounds 926m, Mr Elwood said.
Unit trusts sales declined about pounds 14m, the closure of Hill Samuel Financial Services cut another pounds 15m from income, and last time's figures were flattered by a one-off gilts sale worth pounds 17m. Against that, Mr Elwood said, general insurance did well and lifted its contribution to group income by pounds 10m.
Mr Elwood insisted that, despite poor markets at the moment, TSB would press on with its strategy of being "the UK's leading bancassurer", both manufacturing and distributing its personal financial products to banking customers.
One reason unit trust sales had fallen was TSB's huge sales training programme, which had involved 2,300 staff over six months, the chief executive said. Roughly 10 per cent of the sales staff had left because of a new pay structure, he added.
The group's margins were squeezed but this was compensated for by increased volumes. Total customers' deposits increased by pounds 1.1bn. TSB continued its policy of transferring customers from low to high-interest savings accounts that wiped pounds 130m off low-interest deposits.
Mr Elwood said the bank was on target for closing 200 branches this year, with 100 already shut. The bank would keep a keen eye on the rate at which customers and deposits are retained whenever a branch closes - currently 94 per cent of customers of closed branches are staying, he said. If this figure started falling, they might have to think again.
Phone banking added another 150 staff, bringing the headcount to 500, Mr Elwood said.
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