Abbey National 'open to mergers

Abbey National today said it was open to any merger opportunities as Britain's second biggest mortgage lender reported a slump in profits days after the resignation of its chief executive.

Hit by losses in its wholesale division, which lends to companies, Abbey put up a for sale sign by declaring its willingness to consider possible mergers. Abbey has already been at the centre of takeover speculation because of its weakened state through an ill-fated foray into corporate banking.

"We are working extremely hard to do all the things we can do to improve shareholder value," Abbey's finance director, Stephen Hester, said. "At the same time, if anyone were to approach us with something that looked great to our shareholders, we would be the first people to want to put it to them if we thought it offered them a better deal."

He added however that a takeover scenario was still regarded as an unlikely one. National Australia Bank and Bank of Ireland have been cited as possible bidders, although the slump in the markets would make any takeover deal risky.

A foreign bid is thought more likely as the government blocked a hostile takeover attempt by Lloyds TSB last year on competition grounds. A planned merger between Abbey and Bank of Scotland also fell through last year.

Ian Harley resigned as chief executive last Friday and today's results underlined the decline in Abbey's fortunes. The bank's profits dropped 34% in the first half of the year to ?697m from ?1.05bn a year earlier.

The company blamed the slump on ?208m worth of bad debt. The group said that provisions for bad loans at its wholesale arm were likely to be lower in 2003 after adopting a more conservative approach this year. Abbey shocked the City last month with a profits warning.

Chairman Lord Burns, who has taken on executive duties temporarily, said the company had set out a number of priorities to turn around the business.

He wants Abbey to focus on its core retail financial services operation in the UK and maintain a stronger control on costs, although this did not necessarily mean job cuts.

Abbey shares rose 10p to 668 after hitting a two-year low yesterday.

· Life assurer Prudential reported a 15% drop in half year operating profits as expected, hit by falling equity markets and bond losses in the US.

Britain's biggest insurer by market value said it expected to inject ?300m of new capital into US unit Jackson National Life which has suffered bond losses, including from collapsed telecoms giant WorldCom.

Like the rest of the European insurance sector, Prudential has been hit by concerns that tumbling stock markets are eroding insurance companies' reserves for paying claims and denting their ability to withstand further volatility.

Prudential reported an operating profit - a standard industry measure that excludes net asset value - of ?543m for the first half of this year, down from ?642m a year earlier. Analysts had forecast profits to be in the range ?535-611m. Sales of new insurance business were up 2% percent at ?926m.