Abbey plans big changes as it plunges into the red

Abbey National, Britain's largest mortgage group after HBOS, formerly known as the Halifax, will this week disclose losses of around £1 billion, the first time it has plunged into the red since flotation in 1989.

Luqman Arnold, the newly installed chief executive, will also unveil cutbacks in brands, managers and businesses as he tries to persuade investors that he can restore the struggling bank to health.

Abbey has warned that its results for 2002 will include massive provisions and write-offs against its wholesale banking and life insurance businesses and a cut in the dividend. Analysts' estimates of the loss that will result range from £700 million to 1.5bn - a dramatic turnaround from the £1.9bn of profit the City had been expecting only last summer.

But Arnold will try to make an upbeat presentation, emphasising the strength of the Abbey brand in retail financial services and outlining his strategy for revitalising it.

That may mean ditching some of the weaker brands, probably Scottish Mutual and Cater Allen, to focus on the Abbey National name and stronger businesses such as Scottish Provident.

Analysts expect Abbey to pursue a similar strategy to that adopted three years ago by Halifax. It aimed to keep existing customers by offering better deals on mortgages while it introduced a current account paying high interest to new and old customers.

But Arnold and his finance director, Stephen Hester, are believed to be determined not to pursue growth for its own sake and will instead focus on core strengths.

Arnold has raised questions about the previous management's decision to diversify into wholesale banking where, he feels, it did not have the expertise or resources to be a leading player.

The management structure, which has about 30 different businesses, each with its own chief executive, will be replaced with one functional organisation - a change that could lead to the departure of an entire layer of senior management. He will also reveal which businesses are destined for the 'portfolio' unit, which will house those parts of the group which are up for sale or closure.

That is expected to include all of the wholesale bank, which accounts for the lion's share of the provisions, as well as businesses such as train leasing and vehicle finance. The first major disposal was announced recently when First National Finance, its consumer credit business, was sold to GE Capital for £848m.

Abbey said in November it would cut its dividend, but did not indicate by how much. Most analysts expect a cut of between 40 and 50 per cent from last year's 50p payout.

Arnold will also warn that it could take three years to sell off or close down poorly performing businesses.

In the meantime, the plan is to split Abbey in two, separating the personal financial services division from the loss-making businesses built up under former chief executive Ian Harley.