Abbey warns of more job cuts

Abbey warned today of further job cuts as it seeks to bring costs into line with the rest of the UK banking industry.

As the company reported its first full-year results since it was taken over by Spain's Santander, Abbey's chief executiv, Francisco Gomez-Roldan, said he expected he expected 1,000 to 2,000 jobs to be cut this year.

Since its takeover, Abbey has seen its staff axed by 4,000 to 20,500.

"The majority will be from the back office as we focus on the front end of the business. The majority last year were from the back office and that will be repeated this year," a spokesman said of the next round of cuts.

Santander said Abbey had exceeded all its targets for 2005 and its ratio of costs to income fell to 60.6% from 69.9%. But it said more savings were needed to bring it in line with the industry average, estimated at 45 to 50%. "We will need some cost reductions that will affect employees, but in an amount much lower than last year," Mr Gomez-Roldan said.

Abbey has seen a transformation of its finances since it was bought by Banco Santander for £8bn in November 2004, reporting a 2005 profit of £596m after a £21m loss in 2004.

Customer loans and retail deposits both rose 4% in 2005, while mortgage lending increased 10% to £27.6bn. Expenses were cut by £224m, exceeding the original £100m target.

"They beat our expectations primarily through excellent cost control," analysts at Keefe, Bruyette & Woods said.

Abbey plans to increase its share of UK mortgages to 10% by the end of this year, from 5.8% in the second half of 2005.

But Santander said Abbey's underlying provision for bad loans was £54m higher in 2005 than in the year before, partly due to a modest credit quality deterioration in unsecured lending.

Santander said last October that Abbey would enter riskier areas of the mortgage and lending markets to compete with more aggressive rivals. Santander ultimately wants to transform Abbey from a traditional mortgage lender into a more diverse banking player. Abbey repeated its aim to increase revenue at 5-10% annually in the next three years, after a five-year period of stagnation for the former building society.

"We've made a good start towards achieving our three-year turnaround and long-term goal of becoming the best retail bank in the UK," Mr Gomez-Roldan said.