Bank of Ireland drops Abbey bid

Bank of Ireland today gave up the chase for Abbey National after its ?10bn offer was rejected by the troubled mortgage bank.

In a statement to the London Stock Exchange the Irish bank said a deal between the two had been dependent on Abbey's co-operation.

"Such co-operation has not been forthcoming. Given this position, the bank will not proceed with its proposal," it said.

Earlier Abbey underscored its determination to resist Bank of Ireland's offer by appointing a new chief executive. Three months after ditching Ian Harley, Abbey announced that Luqman Arnold, the former president of Swiss banking group UBS, would be taking up the job of chief executive on October 21. He will be paid a basic salary of ?675,000.

Abbey's shares have slumped this year after a series of profit warnings following a series of bad loans made by its corporate lending arm. In an ill-advised foray into wholesale banking, Abbey lent money to troubled US corporations including bankrupt energy giant Enron and sickly industrial conglomerate Tyco.

The bank's weakened state has left it vulnerable to a takeover, with Bank of Ireland stepping in with an offer.

Mr Arnold, who is 52, has 30 years of banking experience. He was pushed out from his post at Switzerland's biggest bank abruptly in December after just eight months following differences over strategy with UBS chairman Marcel Ospel. At UBS Mr Arnold described himself as a radical force for change. He has also worked at Banque Paribas and Credit Suisse First Boston.

Mr Arnold was chosen in preference to Stephen Hester, the ambitious former investment banker who became Abbey's finance director this year. Investors are expected to welcome Mr Arnold's appointment, although they will want reassuring that Mr Hester will remain on board.

"I am greatly looking forward to leading the group's strategy and ensuring we place an even sharper focus on driving shareholder value," Mr Arnold said in a statement.

Abbey has also been courted by the National Australia Bank and spent much of last year fending off a hostile bid by Lloyds TSB. The bank has said it is keen for its shareholders to get the full value from a turnaround rather than merge with a rival.

Lord Burns, Abbey's chairman, said Mr Arnold had a proven track record and "is the ideal person to steer Abbey National back to a strong growth path". Lord Burns has said the bank would refocus on the UK retail financial services market in a bid to improve returns to investors, and also pledged to cut costs.

Despite Abbey's rejection of Bank of Ireland's bid, investment bank Credit Suisse First Boson argued that the deal was advantageous to the British bank. Abbey stood to cut out duplication, its shareholders would control 58% of the combined group and receive 130p in cash, CSFB said in a research note, adding: "Finally, Abbey does not have the best track record in delivering value to shareholders."