The investment column: Abbey no longer such a sure bet

ABBEY NATIONAL is widely regarded as an out-and-out success story. It became the first building society to demutualise in 1989, and since then investors have had an excellent run for their money. Indeed, before publication of the bank's 1997 results back in February, it seemed as if there was no stopping the bull run in Abbey shares.

But a company cannot trade on former glories forever, and investors received a bit of a jolt when Abbey's shares shed almost a pound after a lacklustre set of annual results.

A number of chinks have begun to show in Abbey's armour of late, the most recent being its European strategy.

Abbey has been in Europe around five years, and has yet to make much money there. Yesterday, Abbey set out to play down reports in the Spanish press that it was poised to sell its businesses there, saying the Spanish operations were merely "under review".

But the problem for Abbey in Europe is not so much whether it sells out in Spain, but more that the market is confused about its strategic direction.

Abbey has said it is not in the market for a European bank. It is understood to have serious reservations about Spain and has yet to make much of its French and Italian operations. Yet it also stresses it is terribly important to be in Europe ahead of the euro, and that the knowledge gleaned from its European operations will give it a competitive edge in the years to come. This looks like lack of focus to some observers.

Couple this with worries about Abbey's core mortgage business, add in concern about its cost base, and the bank no longer looks a sure bet. The shares, up 25p yesterday at 1223p, are on a forward p/e of 17 and are starting to look rather pricey.