Abbey in takeover talks with Spanish bank

British banking group Abbey National is in takeover talks with Spanish bank Banco Santander Central Hispano, it emerged today.

Spain’s biggest bank said in a statement that it was “holding conversations” with Abbey that could lead to an offer for the UK bank.

In a statement earlier today, Abbey confirmed that it had received an approach, but refused to comment further.

The announcement from BSCH, to which Abbey drew attention in a second statement issued this afternoon, said: “Grupo Santander states it is holding conversations with Abbey National.

“It is not possible to determine whether such conversations will result or not in an offer.”

After Abbey’s first announcement, shares in the group rose 16%, valuing it at just over £8bn (€12bn).

After Santander’s statement, they were still more than 15%, or 77p, ahead at 570p.

Speculation in the City about a takeover of Abbey has been rife in recent months.

A newspaper report in May claimed that BSCH had expressed interest in Abbey, although it said the Spaniards had not made an offer and discussions had apparently not moved beyond the initial stage.

Hilary Cook, of Barclays Stockbrokers, said Santander needed to be in the UK if it had aspirations of being pan-European.

“If it comes out with a generous offer, it will be tough for Abbey not to justify offering it to shareholders,” she said.

Earlier, market talk had also focused on the possibility of a renewed approach from a UK bank.

In 2001, Lloyds TSB failed in an £18bn (€27bn) bid for Abbey after the Government blocked the move on competition concerns.

Abbey’s share price has fluctuated widely in recent months as rumours about approaches circulated among City investors.

The group has shed jobs, sold non-core assets and reorganised its operations in a three year overhaul designed to reverse two years of heavy losses.

It has insisted it would show a return to the black in the current financial year after losses hit £686m (€1.03bn) in 2003 and £947m (€1.42bn) in the year before that.

Abbey endured a rough ride from investors at its annual meeting amid renewed concerns over its recovery.

It has also faced criticism over its new corporate image, which ditched the second part of its name and its traditional “couple under an umbrella” logo in favour of the single title Abbey.

The group – the UK’s second biggest provider of mortgages and savings - floated in 1989 and is the sixth largest bank by assets in Britain, the 16th largest in Europe and the world’s 30th largest.

Its main offices are in London, Milton Keynes, Bradford, Glasgow and Edinburgh. It employed about 25,900 people at the end of last year and it has some 1.8 million shareholders.