Abbey's profits slump

Abbey jolted investors today as it reported weak third quarter profits at its personal finance arm, the key to its recovery programme.

Britain's second biggest mortgage bank said profits at its personal financial services business fell 15% to ?259m in the three months to September from the first half of the year.

Under its new chief executive, Luqman Arnold, Abbey has dropped National from its name and refocused its efforts on retail banking after an unsuccessful foray into corporate lending.

Abbey's relaunch has led to an increase in costs - largely in marketing - while profits have been hit by a cut in its standard mortgage rate to bring it into line with rivals. Profits were also hurt by a decline in revenue at its Treasury business, which trades in securities and currencies and had a particularly strong first half.

But Mr Arnold insisted that Abbey's three-year recovery programme, now in its eighth month, was on track.

"2003 is about putting the foundations in place that will position Abbey as a strong and credible competitor in the market, and help pave the way to a return to growth in the second half of 2004 ... we are on track," he said.

As part of the recovery programme, Abbey has ditched its corporate banking business, including junk bonds and corporate loans (to the likes of Enron), that dragged the bank into its first loss last year. That loss led to the sacking of Ian Harley - who was given a ?1.7m payoff - and the arrival of Mr Arnold.

The sale of international and non-core interests has reduced is business assets to about ?20bn - a fall of 67%. In other changes announced last month, Abbey said it was replacing six different current accounts with just one.

The company also scrapped the Abbey National name, ending a familiar high street brand dating back to 1944, and a facelift saw the demise of the famous logo of a couple under an umbrella.

Mr Arnold has made no secret of his desire to give Abbey a new image that sheds the perception of banks as "patronising, bureaucratic and overbearing". In the recent past, the bank was tagged the "Shabby Abbey" for an allegedly shoddy approach to customer service.

As part of its new customer-friendly approach, Abbey has launched an outreach programme that features a 60-strong team making 30,000 "proactive" customer calls a week.

Abbey was down 2.7% at 549p in lunchtime trading after having been down as much as 5%. But analysts said the company needed some time to change direction.

"It takes a while to turn around a brand in the financial services business, and it will take some time before that shows through in the numbers," James Hamilton, an analyst at WestLB Panmure, told Reuters.