Abbey halves dividend as losses near ?1bn

Britain's second-biggest mortgage lender, Abbey National, today reported its first ever annual loss since floating on the stockmarket in 1989, following a year of turmoil at the bank.

The group reported pre-tax losses of ?984m and halved its shareholders' dividend to just 25p.

Abbey's troubles stem from its venture into corporate banking, which landed the bank with bad debts, leading to the removal of former chief executive Ian Harley last year.

Luqman Arnold, who took over as chief executive in October, today said: "On behalf of the whole board, I would like to express our regret at the results and dividend cut that we have announced today."

Abbey said: "The loss before tax for the Abbey National Group of ?984m is extremely unsatisfactory to all our stakeholders and highlights the real challenges that the business is facing up to."

Abbey said that following an intensive strategic review started in November, it would focus the business solely on providing personal financial services in the UK, while all businesses outside this remit would be cut out.

"This is a radical shift in strategy. It will allow us to channel our energies into our core markets where we have demonstrable strengths and where we have the greatest opportunity to succeed and distinguish ourselves," the group said.

Abbey is to slash costs by ?200m in its personal financial services businesses as well as seeking "extensive cost savings" in the businesses to be sold off or run down. A spokeswoman said there could be some job cuts but could not give a number.

The company's turnaround plans come after a tumultuous year sparked by the corporate division's exposure to high-risk loans, particularly in the US. That led to the departure of Mr Harley in the summer and attracted a failed ?10bn merger approach from the Bank of Ireland.

The group said staff reductions were most likely to come from back office and infrastructure roles, while customer facing and service areas were parts it wanted to build up.

Mr Arnold said: "The net effect is likely to be a reduction in jobs; we do not have a number."

Under the new plans, Abbey is to exit all its international operations and its troubled wholesale bank. It agreed earlier this month to sell the consumer finance unit of its First National business, another non-core operation. The remaining operations will focus on UK consumers.

The group said: "While not yet in optimal shape, we nevertheless start with a franchise of around 16 million customers, a top five position in many relevant markets, a distinctive, trusted and powerful brand, and a broad distribution network."

Abbey, which has 750 branches, said UK consumers "do not feel that they have been well served by the UK banking industry". The group warned it would be a "long hard" three years ahead to turn the firm around.

Mr Arnold said: "We know that our shareholders will want to see tangible progress along the way, and we will be reporting regularly, the first opportunity being at the time of the interim pre-close statement in June."

He added: "The strategy will focus all our resources on serving the personal financial services needs of the customer - by delivering greater value to our customers, we will earn more value for shareholders."

In early trading this morning, shares in Abbey surged 8% to a high of 403p, later easing to 402.5p, as the market responded with relief that the worst news was now known.