Thumbs down for new Abbey strategy

By Katherine Griffiths
Monday 16 December 2013 06:01
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Abbey National, Britain's second biggest mortgage lender, yesterday tried to win back investors' confidence in the wake of Monday's profits warning by saying it would boost returns from its wholesale banking division.

Ian Harley, the chief executive of Abbey, announced the plan in a meeting with analysts as he tried to face down mounting calls from investors for his resignation. Detailing its plans, Abbey said it would replace its investment strategy aiming at double-digit growth with a more cautious one of between 5 and 10 per cent each year.

This would be countered, Mr Harley told analysts, by the fact the lower risk investment strategy would require less capital to underwrite it in the future, creating a post-tax return on equity target of 17 per cent, up from 12 per cent last year.

The City was unimpressed, and shares dipped 8p to 922p. They fell as much as 10 per cent on Monday, when the bank warned it would have to write off about £400m this year in its wholesale division, which offers banking services to companies, on losses expected on private equity investments and junk bonds.

One analyst said: "It is pretty cold comfort to be told the best the division can do is to produce a better return on equity when it is saying at the same time that growth is going to come down so far. And Abbey's problems are not just in wholesale banking. There are all sorts of problems at the life side as well."

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