Abbey National warned yesterday it would incur its first loss since it demutualised in 1989 and would cut its dividend and increase loss provisions in its troubled wholesale bank. Abbey said the pain was part of a strategy to focus on its core mortgage, savings and life insurance business in a bid to regain its competitive edge after a disastrous year for the UK's sixth largest bank.
Abbey shocked the market when it announced a £252m black hole in its wholesale bank in the first half of the year. The revelation led to the resignation of Abbey's chief executive, Ian Harley, in July and made the bank seem like a vulnerable takeover target to National Australia Bank and Bank of Ireland
Analysts believe the wholesale bank may have to take a further £750m hit in the second half. Abbey may also have to inject more cash into Scottish Mutual, its struggling life business, which has already been bolstered by £575m of capital.
As well as possible new cash injections, Abbey said it was changing the way it accounted for the value of assets held by Scottish Mutual to take account of stock market fluctuations. The move will will hit profits by £500m post-tax and will lead to a deterioration of Abbey's tier-one capital strength.
Stephen Hester, Abbey's finance director, said Abbey's businesses were not "imploding", but that the bank would "quantify and take write-offs in the full-year in February".
He denied that Abbey's new chief executive, Luqman Arnold, was "over egging" the likely losses to allow money provisioned this year to find its way back into Abbey's profit and loss account. Mr Hester said the provisions, which will be heavily affected by the behaviour of the stock market, would be "a prudent and necessary bringing into line of our business". Abbey's shares, which have lost nearly 40 per cent of their value this year, rose 28.5p to 667.5p yesterday.
There was widespread disappointment in the City that Abbey was not more specific about its likely full-year losses. Sarah Horder, an analyst at Teather & Greenwood, said: "The statement was quite irritating because it has given us no guidance whatsoever to base full-year forecasts on."
Mr Arnold, who became Abbey's chief executive five weeks ago, has spent his time trawling through the bank's businesses to decide which bits he wants to keep and which will be put on the market. He said much of the wholesale bank would be put into a new division with other businesses, which will be sold off over the next year. It is likely that First National, Abbey's consumer finance arm, will also go. Mr Arnold said Abbey would become "the largest financial services organisation in the country dedicated to personal financial services".
Abbey has in the past few weeks been fighting back to boost its market share in its core markets such as mortgages. Mr Hester said there were already some "green shoots of recovery" in Abbey's personal financial services businesses.
Abbey reinforced speculation that it would cut its dividend at its year-end saying: "The present dividend level is not expected to be maintained."
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