Abbey refit starts with sale of finance arm

Abbey National yesterday sold off its First National consumer finance operation for £848m in what is expected to be first of many disposals by the high street bank.

The sale is the first evidence of the radical restructuring plan promised by the new chief executive, Luqman Arnold, who has pledged to refocus the company on its core personal finance operations.

After a night of last-minute negotiations, the consumer finance arm of American-owned General Electric agreed to buy most of the business based in north London that became part of Abbey seven years ago.

The business provides point of sale loans for customers buying items such as "big ticket" electrical goods - as well as a financing for double glazing and loans to customers with low credit ratings.

GE Consumer Finance pledged to retain First National's 1,400-strong workforce - largely located in Harrow and Enfield - and develop the business alongside its other consumer business such as car loans, in-store credit cards and its igroup mortgage arm.

The City is eagerly awaiting further progress on the new management's plans to pull out of its risky treasury business when it publishes its full-year results later this month.

The precise details of which operations are up for sale could be revealed at the same time and City sources are looking for confirmation about the bank's plans for its business banking and offshore arms.

Abbey has already warned the City that it expects to make a hefty loss this year - estimated to be in the region of £1.5bn by house stockbroker UBS Warburg - and to cut its dividend by an estimated 50 per cent.

Abbey has also indicated that it will need to make big write-offs of goodwill for a flurry of acquisitions made in the past - largely initiated under the ousted chief executive, Ian Harley.

Some of those write-downs are expected to relate to First National, which was bought in 1995 and developed through the acquisition of Lombard from the NatWest group in 1998.

Analysts at investment bank Merrill Lynch said that while the price paid by GE for the financing business appeared "full" at first glance, it also included £355m of surplus equity which would be paid back to Abbey.

Abbey's shares fell 9p to 409p yesterday - in line with the general market's performance - even though it said the deal would have a "positive impact" on its regulatory capital ratios.

Two parts of First National were not sold to GE - the motor financing business and litigation financing - although Abbey made it clear yesterday that it was "evaluating various option" for these arms.

It is thought the sale of First National, conducted by the investment bank Morgan Stanley, attracted interest from a number of potential bidders, including HBOS, Lloyds TSB and Bradford & Bingley.

Mr Arnold and the company's new finance director, Stephen Hester, are promising to unwind the diversification that Abbey embarked on after it converted from a building society into a bank in 1989 at a flotation price of 130p.

Decisions, decisions

Sold

· First National

Lined up for sale or closure

· Porterbrook trains

· Aircraft leasing

· Operations in France, Italy, Hong Kong and Australia - where Abbey owns 5% of Sydney airport

· Investments in bonds by the treasury operation

· Loans and investments in private finance initiative projects such as national air traffic control service

· Parts of First National not sold yesterday, including motor finance

To be retained

· Current accounts, mortgages, credit cards, savings accounts, the branch network, the Cahoot online service and probably Scottish Provident

In question

· Small business banking

· Scottish Mutual, the investment products side

· Cater Allen, the offshore banking business