Abbey National, Britain's struggling sixth-largest bank, yesterday revealed its former chief executive, Ian Harley, received a pay-off of nearly £1.7m after he was forced out last July following mounting criticism of his leadership and his failure to stem the bank's losses.
Details of Mr Harley's pay-off emerged as the bank reported its first annual pre-tax loss of £984m, a halving of its dividend and a series of write-offs.
Luqman Arnold, who replaced Mr Harley as chief executive in November, apologised for the results and expressed regret on behalf of the new board. "Abbey National was not well positioned for these market conditions," he added.
Mr Harley's pay-off was part of a £6.44m package handed out in compensation and pension contributions to five senior directors who left last year after a series of problems engulfed Abbey, including a black hole in its wholesale bank and weakness in its life business.
Lord Burns, Abbey's chairman, said: "I am as shocked as anyone about the size of the numbers. But I see no alternative when people have contractual rights."
Mr Harley received a £372,000 bonus on top of one-year's salary, amounting to £687,000. He also received £560,000 in pension benefit for his final-salary scheme.
Some of the other directors who left also had contracts with compulsory redundancy payments. Tim Ingram, who was head of business-to-business banking, received £1.67m, including £401,640 as a compulsory redundancy payment. Mr Ingram was responsible for First National, the consumer finance business Abbey is now selling, and its struggling life businesses Scottish Mutual and Scottish Provident.
Other directors who benefited from the payouts were John King, the director of corporate development and resources, Ian Treacy, Abbey's former company secretary, and Andrew Pople, who headed up the retail bank.
Details of the payments raised eyebrows in the City. One analyst said: "Everyone felt a bit sorry for Ian Harley when he went last year because there were plenty of people who were responsible for the mess Abbey had got into. But it is breath-taking that he has received a bonus for time he didn't work, and after Abbey's shares went from £14 to through the floor."
Abbey's managementindicated its displeasure with how the bank had been run under Mr Harley. Lord Burns, who presided over the boardroom shake-up, said of the fact that Abbey held no provisions for its wholesale bank until 2000: "I would like to think it wouldn't be the way I would approach it."
Abbey was hit by a series of massive charges, including a £632m write-down on the value of investments in its life business, a £902m provision for probable losses in its wholesale bank and a £1.1bn goodwill write-down. This left the bank nursing a pre-tax loss of £984m for the 12 months to December, compared with a £1.47bn profit a year ago.
Abbey's shares bounced 5p to 378p on relief the results were not worse. Some analysts had been predicting a 2002 loss of up to £1.5bn.
Mr Arnold attempted to make yesterday's much awaited results statement a cut off from the bank's troubled past, laying out plans to revitalise it over the next three years by focusing entirely on core operations such as mortgages, savings and current accounts.
Mr Arnold argued Abbey would break from the other big banks by introducing a new system of offering customers comprehensive advice about their finances, even on low-cost products. "In the UK the big banks look the same to the customer. There is a great opportunity for a bank to develop a new advice model for the mass market," Mr Arnold said.
Abbey is aiming to create annual cost savings of £200m a year by 2005. This will be brought about by a swath of job losses and outsourcing parts of the personal financial services business. Mr Arnold said decisions on the number of redundancies and where they would fall had not yet been taken.
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