Abbey National

Abbey National is securitising another £2.2bn of its mortgages, the largest deal of its kind in Europe. 'What?' and 'So what?' are obvious retorts. But the matter deserves consideration.

First the 'what?' Securitisation is a technical way of describing the fact that Abbey is to take a chunk of its £65bn mortgage book, bundle it up and sell it on in carefully constructed bits to big institu tional investors in Britain, Europe and, unusually, the United States. Customers will never know if the mortgage bundled off is theirs and the Abbey will still manage it.

The 'so what?' is more interesting. It might not be as headline grabbing as the decision by HSBC to lop one percentage point off its mortgage rate, but, in theory, could also lower lending rates.

Gareth Jones, Abbey Na tional's managing director of wholesale banking, explained that the move could result in better deals for customers. "If we didn't do it we'd have to raise more retail funds ... for which we'd have to pay more."

For technical reasons, the securitisation means Abbey is raising money without having to stock up on as much regulatory capital as would otherwise be necessary. "They get to recycle their financial capital," said Bill Young, managing director of securitisation at Schroder Salomon Smith Barney, the investment bank handling the deal.

Mr Jones insisted it was very hard to tell how much cheaper this financing would be. Abbey is not the only bank to securitise. Northern Rock, for instance, is receiving half its new funding through such means.

But Abbey's plans are the largest so far. It has already completed a number of other deals and, by the time this one is completed, 7% of its mortgage book will be securitised. There is more to come.

Only time will tell whether the process will lead to better rates. According to Richard Coleman, banking analyst at ABN AMRO, it might not have much impact immediately. However, "in the long run, it is a very big deal".