Takeover move sends Abbey shares soaring

Shares in Abbey soared over 17% as Santander Central Hispanico of Spain confirmed bid interest in Britain's second biggest mortgage lender.

Santander shares were suspended after it said earlier it was in talks with Abbey but that it was impossible to say if the talks would result in an offer.

Today's move from the aggressive Spanish bank followed its previous informal approach to buy Abbey earlier this year. The potential takeover and prospect of further consolidation lifted other UK banking stocks, with Alliance & Leicester and Bradford & Bingley up 5.7% and 2.9% respectively.

Abbey has been a perennial takeover target. In 2001, Lloyds TSB offered ?19bn for the bank, but the merger was blocked by the competition authorities. Most recently, in 2002, Abbey rejected an offer from the Bank of Ireland.

Abbey is in the middle of a recovery programme under Luqman Arnold, who was brought in as chief executive after his hapless predecessor, Ian Harley, led the bank in a disastrous foray into corporate banking, resulting in two years of heavy losses.

Mr Arnold has shifted Abbey back to its core business of consumer banking. In April, Abbey said it was on track to return to profitability this year after posting a loss of ?686m in 2003. As part of its makeover, in September Abbey changed its name from Abbey National.

The bank had been called Abbey National since 1944, when the Abbey Road Building Society and the National Building Society merged to form Britain's second-biggest mortgage lender. In 1989, the mutually owned company listed on the stock market.

The main attraction for any buyer of Britain's sixth-biggest bank, by assets, is its 741 branches and 18m customers, which would provide any foreign bank with a considerable presence in the UK, while a British buyer would have room to cut costs.

Abbey shares closed at 568p, valuing the company at around ?8bn.