Abbey is set for writedown

By Heather Tomlinson
Sunday 24 November 2002 01:00

Troubled Abbey National will this week reveal a massive writedown of its assets that could lead to a financial loss of £1.5bn for the year.

The bank has just installed a new chief executive, Luqman Arnold, who is working to reduce its mounting problems. It is facing reduced market share in its retail businesses such as mortgage lending; it has a weakened capital structure; and it is facing a crisis at its wholesale banking division, which has made bad investments into high-yield debt and private equity. The latter is expected to require a writedown of assets in a trading statement to be announced on Wednesday.

In its interim results Abbey recorded a £242m provision on these assets. Investment bank Merrill Lynch is predicting the problems will intensify and the company will report a £1.5bn financial loss for the year.

"As far as UK banking is concerned, Abbey is the weakest link," said a research note from Merrill. "Solving this problem goes beyond tinkering with the existing businesses."

The low capital position is also threatening the dividend to shareholders. Abbey had to inject money into its life assurance side, Scottish Mutual, earlier this year to meet capital requirements.

There are further worries that staff could lose their jobs in an effort to cut costs. Merrill says it would like to see cuts of up to £300m. Another option is to sell off badly performing loans or non-core assets such as First National, a consumer credit business.

Mr Arnold was installed after his predecessor, Ian Harley, resigned in the face of shareholders' wrath. The former UBS executive recently showed his faith in the company by buying more than 100,000 shares at 620p. Shares have risen since then to finish the week at 668p, although this compares to a high of 1,305p in the summer of 2001.

The share slide was mainly caused by the company's last profits warning in June. The company rejected a bid from the Bank of Ireland last month.

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