Ian Harley, the chief executive of Abbey National, yesterday caved in to the mounting criticism of his stewardship of Britain's sixth-largest bank by announcing he would stand down with immediate effect.
Abbey has not lined up a replacement for Mr Harley, who will be replaced by its chairman, Lord Burns, until the bank has found a new chief executive. Lord Burns, formerly a long-serving Treasury mandarin, will have to present Abbey's interim results to the City next week after only joining the board in February.
Mr Harley has been under intense pressure to resign since he warned last month that Abbey would have to write off about £400m of bad debts from losses in its wholesale banking division.
The announcement provoked outrage among shareholders, who felt Mr Harley had misled them with previous guidance that trading was in line with expectations.
This was not the first rough ride for Mr Harley. He was criticised last year for fighting an £18bn bid from Lloyds TSB, which would have delivered £13.50 a share, compared to the £7 level they have sunk to in the past few months. Yesterday they closed down 2p at 695p.
Mr Harley, 52, is in line for a £1m pay-off, made up of one year's salary at £605,000, plus a bonus. He has been at the bank for 25 years, starting as a financial analyst and rising to finance director in 1993. Four years ago, he was picked to succeed Peter Birch as chief executive.
A spokesperson for Abbey said Mr Harley was "very sanguine about the situation" and accepted that the bank's performance has been "disappointing".
Jon Kirk, an analyst at Fox-Pitt Kelton, said: "Ian Harley did some good things for Abbey but they were outweighed by the wholesale banking cock-up. Another big slip up was defending Abbey against the Lloyds bid that looks stupid now."
Analysts pointed out that while the black hole in wholesale banking has grabbed the most attention, Abbey's problems have been almost across the board, including being forced to inject £150m into its life assurance business, Scottish Mutual.
Most life offices have been weakened by falling markets, but it further knocked the confidence of investors, who have become dissatisfied even with Abbey's performance in its core savings and mortgages business.
Abbey said the decision to let Mr Harley go now was to create "clear blue water" between his departure and the bank's interim results next Wednesday, when Lord Burns will try to convince the City that Abbey does have a future as an independent bank.
Abbey has recently been approached informally by National Australia Bank about a possible deal. NAB would not comment on Mr Harley's resignation, but some analysts believe his departure could make a tie-up easier to facilitate.
Ian Hodges, head of European equity research at Barclays Private Clients, said: "Ian Harley was seen as a spanner in the works to possible tie-ups. That could be one reason why Lord Burns decided to get the spanner out now."
Abbey denied that its board has been casting around for a new chief executive for weeks, saying that it would now appoint headhunters to look at both internal and external candidates.
Analysts expect Abbey to bring in someone from outside as most of its senior employees are tainted by Abbey's mistakes over the past 12 months.
Gordon Pell, the head of retail banking at Royal Bank of Scotland, Eric Daniels, who runs Lloyds' retail business, and Adam Applegarth, the chief executive of Northern Rock, are all tipped as likely candidates. John Varley, finance director of Barclays, may also be attractive for Abbey but he is thought to have his sights set on succession to the top job at Barclays.
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