Abbey National raises £848m with sale of consumer lending arm to GE

Abbey National, Britain's beleaguered sixth-biggest bank, yesterday made its first significant disposal as part of its plan to get its business back on track, hiving off most of its consumer lending arm, First National, to General Electric for £848m.

The deal marks the end of a disastrous expansion the former building society embarked on in the 1990s in a bid to compete with Britain's Big Four banks. GE Consumer Finance, a subsidiary of the giant US conglomerate, is paying a £218m premium to the net tangible assets of the part of First National it is buying. Analysts welcomed the deal, saying Abbey negotiated a good price.

Luqman Arnold, Abbey's recently appointed chief executive, said in November he would thoroughly overhaul the bank to refocus on its core retail banking business of mortgages, savings and investments.

The move follows a tumultuous year for Abbey, when a flow of alarming news about bad debts came out of its wholesale banking business. Bad debts accrued in the wholesale bank are expected to push Abbey into the red for 2002.

Abbey went aggressively into wholesale banking to try to diversify from being just a retail bank. Ian Harley, Abbey's former chief executive, stepped down after the blackhole became apparent last summer.

GE has bought three divisions of First National. These are mortgages for people with a poor credit history or who already have a mortgage, loans for household improvements and loans purchases such as carpets. The deal will gain 2.1 million customers for GE Consumer Finance. First National's motor finance, which could be worth up to a further £150m, and litigation funding businesses are not part of the deal. Abbey said it was "evaluating various options" for both businesses.

Abbey is expected to announce the sale of further non-core businesses, including IEM, the aircraft leasing arm, and its Porterbrook train leasing arm.

Abbey is also looking at the future of its international operations, including mortgage businesses in France and Italy and its offshore operation in Jersey.

GE is circling the UK for acquisitions as it is keen to become a bigger player in this market. "The acquisition represents another significant step in the development of our UK consumer finance business," said Charles Alexander, president of GE Capital Europe.

GE Consumer Finance already operates in auto-financing, storecards and intermediary mortgage business in the UK.