Abbey National turns down B o I offer

Mortgage bank Abbey National today rejected an approach by Bank of Ireland to create a London-listed bank with headquarters in Dublin.

In a statement to the London Stock Exchange today Abbey said its board had “carefully considered” the approach.

It said the board “unanimously concluded” that the most effective way of restoring shareholder value would be to “achieve the operating and structural changes” it had targeted.

“The board of Abbey National has therefore determined that the Bank of Ireland’s approach is not in the best interests of shareholders,” it said.

A Bank of Ireland spokesman said: “The bank has noted the statement and is very disappointed with the response to our proposals. As we have not engaged in any negotiations, the bank is now considering its next step.”

All eyes will now be on Bank of Ireland's next move.

It is thought the bank could be prepared to increase its offer but analysts say it is unlikely to launch a hostile takeover bid.

Abbey’s rejection also opens the way for other potential bidders.

National Australia Bank, which has been hotly tipped in the past as a bidder for Abbey, is reportedly monitoring developments at the UK bank.

National Australia Bank owns Clydesdale and Yorkshire Banks in the UK.

Analysts yesterday had predicted nothing would come of Bank of Ireland’s approach.

However unions were immediately concerned about the impact on jobs.

Abbey National, which has 756 branches, employs 28,500 staff while Bank of Ireland has 550 branches and 18,000 employees.

The interest in Abbey follows a collapse in the group's share price this year - shares have halved from more than £11 (€17.6m) to close at 535.5p on Monday.

Earlier this year the bank recorded a 34% fall in half-year pre-tax profits because of involvement in high-risk corporate lending in the United States.

Former chief executive Ian Harley resigned in the summer and chairman Lord Burns is leading the turnaround plan as acting chief executive.

Concerns the bank may have to cut its dividend to fund a large injection into its life assurance arm have also hit shares, while there have been fears it may be preparing to cut 3,000 jobs.

The flow of bad news has meant Abbey has been seen as a takeover target, with shareholders eager to recoup some of their losses.

But investors have been increasingly frustrated.

Last year the bank failed to secure a merger with Bank of Scotland, and then angered shareholders by fighting a takeover approach from Lloyds TSB, which valued shares at more than £12 (€19).

The bid was eventually blocked by the Government, effectively meaning other UK clearing banks were also prohibited from bidding due to competition concerns.