Abbey National, the ailing bank, is to focus on its core mortgage business and slash costs after the slump in first-half profits that cost chief executive Ian Harley his job.
The bank will put more emphasis on its current accounts, banking for smaller businesses, credit cards and insurance services. Stephen Hester, Abbey's finance director, said: "We are shrinking the size of our wholesale business – which everyone will applaud – to focus on retail. That is what we do best."
Cutting costs is a major priority for the group, which did not rule out job losses from its administrative staff.
The finance director sought to reassure shareholders that the board was shaking off its old management culture, saying it would "look problems in the eye and avoid surprising the outside world."
The news may please shareholders angry at the group's management mistakes, but policyholders in the group's life insurance businesses are in line to have policy payouts cut.
Abbey, Britain's sixth-biggest bank, owns Scottish Mutual and Scottish Provident, as well as Abbey National Life. These businesses are very close to solvency margins and have been hurt by falling markets.
Mr Hester said unless markets make a substantial recovery, the company will have to follow the likes of Aviva and cut payout levels. Abbey had to put £325m in to Scottish Mutual's with-profits funds in June and further handouts are more than likely as markets continue to slump. Mr Hester said closing its with-profits fund to new business would be a 'dramatic step' but added he was keen to get away from the costly business. "We believe the with-profits market does not give additional return on capital. We have not turned the tap off yet, but we want to fill up the bath with other products that provide a better return on capital."
Abbey's group profits dropped £57m to £697m in the six months to 30 June, in line with its recent warning that the bank has suffered badly from US bond defaults. The bank increased provisions to £242m to cover bad debt in its wholesale banking division. Profits in its retail banking business fell 7 per cent to £623m from £672m in the previous year. Abbey is increasing its interim dividend by 5 per cent to 17.65p.
Ed Firth, an analyst at Credit Lyonnais Securities, said although the results were no worse than was predicted last month, there are still questions to be asked. "The big problem is that it has no significant competitive advantage and its product mix is not that good."
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