Abbey to sell First National

Abbey National, Britain's sixth largest bank, has put its consumer credit arm up for sale in an attempt to return to basics after a disastrous foray outside its core retail business.

The sale of mortgage lender First National, which could raise £800m, will also ease fears that Abbey will need to cut its dividend or launch a rights issue to prop up its life assurance operations - Abbey National Life and Scottish Mutual.

Last week, Abbey shares hit a six-year low amid rumours that the company would need to raise fresh capital if it is forced to increase provisions for bad loans at its wholesale banking division.

Abbey is thought to have appointed Morgan Stanley, the US investment bank, to handle the sale of First National. Potential bidders are likely to include Barclays, Lloyds TSB and GE Capital.

Abbey refused to comment yesterday on what it called "speculation".

Lord Burns, group chairman who has taken the helm while Abbey searches for a new chief executive, outlined his plan to concentrate on the bank's core mortgage-lending and retail financial services businesses alongside interim figures in July. His remarks followed the departure of chief executive Ian Harley, who had spearheaded the company's expansion into wholesale banking.

Lord Burns, a former permanent secretary at the Treasury, vowed to dispose of non-core assets and scale back the activities of its accident-prone wholesale banking division so that Abbey could concentrate on its retail customers.

The strategic review followed a disastrous year for Abbey which saw the wholesale bank write off £272m in investments, including a £95m exposure to Enron.

The company is still looking for a new chief executive.

First National, which has about four million customers and a £9bn loan book, has three main businesses: retail finance; motor finance and a division which specialises in sub-prime mortgages and loans.

The retail finance business, Tricity, is the most high profile of the three with three million customers, and is Britain's largest provider of point-of-sale retail finances.

The decision to sell First National will not come as a surprise to the City. Its future has been in doubt since pre-tax profits fell 37% to £92m in 2001. Indeed, Abbey sold First National Vehicle Holdings, its corporate fleet hire business, to Lloyds TSB for £447m last year. It also tried to sell Tricity for £250m but the deal fell through after a price could not be agreed.