More write-offs at Abbey as new owners impose Santander logo

Abbey's new Spanish owner, Santander Central Hispano, unveiled a major overhaul of its branches yesterday as the UK bank reported a steep drop in profits and market share.

The extent of the challenge facing Santander in Britain became clear when Abbey posted a 20 per cent fall in annual pre-tax profits, excluding restructuring costs and goodwill, to £814m at its core retail business. Net mortgage lending plummeted to £3.1bn from £9.4bn in 2003, taking Abbey's share of the market to 3.1 per cent from 9.9 per cent.

The fourth quarter was particularly weak when retail profits fell to £60m, with net mortgage lending in the red to the tune of £500m. Net interest income fell 14 per cent to £1.47bn.

Full-year statutory pre-tax profits totalled £273m, including £564m of reorganisation costs associated with Santander's £9.1bn takeover of Abbey, Europe's biggest cross-border banking deal. That followed two years of losses.

Francisco Gomez-Roldan, in his first public appearance as Abbey's new chief executive, sought to put a positive gloss on the results. "In the three months that I've been here we have started the turnaround," he said. "The challenges for the year are significant but I am certain that we are up to the job."

Just 18 months after its previous rebranding exercise, Abbey is to get a new look. Santander's red flame logo alongside the Abbey name went up on the UK bank's London headquarters on Thursday, just in time for the annual results presentation. At a cost of £8.5m, Abbey's branch network will be rebranded from May alongside a major refurbishment programme, and all 726 branches are expected to sport the new logo by the end of the summer.

The latest rebranding, hot on the heels of the £11m switch to a simple, baby blue "abbey", will add to the concerns of critics, who say that the bank lacks a consistent identity. But unlike in September 2003, when the then chief executive, Luqman Arnold, ditched the traditional "umbrella couple" and launched an advertising campaign saying Abbey was "turning banking on its head," Santander does not plan a special campaign to advertise the new ownership.

Mr Gomez-Roldan, previously Santander's finance chief, replaced Mr Arnold when Santander sealed the takeover in November. Yesterday Mr Gomez-Roldan announced he wanted to rebuild Abbey's high street franchise by increasing the number of sales staff by nearly one-third. He admitted that Abbey was "not so good at keeping customers and cross-selling," but pointed to Santander's "proven track record for delivering turnaround for Banesto", the bank that Santander acquired in the mid-1990s.

He is also pushing ahead with 3,000 job cuts and revealed yesterday that next month 2,000 staff would be told to leave. That will help bring forward some of the cost savings announced in the takeover plans: half the targeted £300m is now expected to come through this year. Other savings are being made by cutting non-essential projects by 60 per cent and reducing the number of call centres. Santander is also rolling out its IT platform Partenon at Abbey, which integrates products, back office operations and management information. One in four branches will be relocated to a better site.

Abbey's results came as its parent Santander reported a 20 per cent rise in annual net profits to €3.1bn (£2.2bn).

Separately, the mortgage bank Alliance & Leicester echoed some of Abbey's problems when it warned yesterday of a further slowdown in the lending market and tighter profits margins this year. Richard Pym, its chief executive, said: "The long-heralded slowdown in the mortgage market finally arrived last year." He admitted A&L's net mortgage lending was nil in the fourth quarter. The bank's pre-tax profits for the full year rose 6 per cent.