Bad habits at the Abbey

The disclosure that Abbey National boss Luqman Arnold and finance director Stephen Hester collected £2 million, including bonus payments, when the mortgage bank had clocked up huge losses, makes you wonder about the board's judgment.

The directors claim they deserve the money because they are helping to tidy up the mess left by previous management and you have to pay good rates to attract talent and keep it.

This nonsense flies in the face of best corporate governance, which demands that pay and performance be linked. But Arnold has not yet transformed Abbey; in fact, it is still in a mess and arguably more of a switch-off for investors than it was 18 months ago when the City believed the group was a prime takeover target.

But the two previous bidders - Bank of Ireland and National Australia Bank - are either unwilling or unable to launch fresh bids, while the main UK banks would be prevented from doing so by the Competition Commission. Shareholders hoping to make a quick killing by holding out for a takeover may have to wait a long time.

But what about management? It is true that Arnold has reduced the vulnerability of the bank by winding down its risky corporate lending operation. But let's get things into perspective. When Abbey floated in 1989, under the stewardship of Peter Birch, its franchise was second to none.

Competitors such as HBOS are now miles ahead. Take Abbey's market share of depositors' money - it stands at just 7 per cent against HBOS's 15.4 per cent. The fact is that Abbey has underinvested in its branch network, many outlets look cheap and nasty, standards of service are not always up to scratch and customers are voting with their feet.

Frankly, Abbey's brand name will take years to restore, not to mention hefty marketing expenditure. When that happens, Arnold and Hester will deserve their bonuses, but not now.

Erskine's MM02 ready for a ring


A rather different story is emerging at MM02, the mobile operator that was once part of BT, headed by Peter Erskine. At least he can claim he has transformed what was a basket case into an operation now being courted by international competitors. The contrast with Abbey National couldn't be greater.

Through some nifty marketing and sponsorship deals, the 02 logo is almost as common a sight as Vodafone and the handsets are becoming increasingly popular with the young and upwardly mobile. Here is a company that has built a brand name from scratch and is doing rather well.

With nearly 13 million subscribers, the company is streets ahead of rival 3, backed by Hong Kong conglomerate Hutchison Whampoa, which has just 210,000 and is losing money hand over fist.

But Erskine's biggest achievement is to have turned around MM02's loss-making German offshoot, which makes it doubly attractive to a predator. A footprint in two of the largest western European economies is hugely appealing for would-be bidders.

However, he will not let the company go for a song. The board recently rejected an approach from Dutch competitor KPN, pitched at about 105p a share. Last week, there were rumours that the Dutch were preparing another offer valuing MM02 at 125p, but I doubt it. KPN's shareholders are pressing management not to overpay.

Apart from KPN, BT is a possible buyer, as is Telefonica of Spain: both have run the numbers. In truth, though, Erskine will probably have to wait some time for a deal because potential purchasers need to convince shareholders that acquisitions make sense after the madcap expansion of the late 1990s. But at least Erskine has suitors - unlike Abbey.

Who's minding the shop at M&S?


Here's a puzzle: who is really in charge of Marks & Spencer? Is it chairman Luc Vandevelde, who has rattled investors by agreeing to join the board of Carrefour, the hypermarket chain? He certainly seems to be distancing himself from what is going on at M&S these days.

Or is the man wielding the stick the embattled chief executive Roger Holmes, who has taken some flak for M&S's poor performance, especially in clothing?

Perhaps neither are pulling the strings. Former Selfridges chief Vittorio Radice now seems to be in charge of almost everything at M&S, which he joined just a year ago. Last week, he was made clothing supremo, a position which he takes on top of his role of revitalising the stores.

But his vision of M&S becoming a trendy retailer with international appeal is a massive punt. The danger is that Radice will alienate middle England, which has a complex and varied taste when it comes to clothing and in home furnishings, the mainstay of the new Gateshead store.

M&S doesn't have long to prove itself to a notoriously short-term and fickle City. If the group has another weak Christmas, the knives will surely come out - certainly for Radice and Holmes. And probably for Vandevelde as well - assuming that he hasn't jumped ship by then to take command of Carrefour, as many expect.