Abbey National record first annual loss

BRITAIN'S second biggest mortgage lender Abbey National, targeted last year recently by Bank of Ireland, slumped to its first annual loss of €1.447 (Stg£984m) in a massive reversal of fortunes.

Bank of Ireland tried to buy Abbey last year and was rebuffed. Analysts said figures showed that the bank went chasing the deal "with its pants down" and should be thanking its lucky stars it went no further than the initial approach."

Bank of Ireland wanted Abbey on board to resolve its seriously under performing Bristol & West which it bought in the UK back in 1997 and which has been dragging the group down ever since.

Merrion Stockbrokers in a recent report gave the bank a Buy recommendation, but said it was out of its depth in the UK in attempting o punch above its weight in trying to make a major acquisition there.

It concluded that Bank of Ireland needed to seriously resolve the cost issue at B&W or get out of the business without delay.

Analysts do not believe Abbey's dramatic reversal of fortunes has any serious implications for Irish banking and see it as a once off issue for that group to resolve.

Abbey said it is to tackle costs and cut job numbers, following these results.

Prior to the huge loss announcement the group's shares fell a further 4.8% to a 10 year low of 548.50cent.

Since May last the shares have shed 65% of their value, but yesterday's bad corporate figures saw the shares rally when the figures were not as dire as the markets had feared.

As a result the share price gained 8% to 594.12cent and eased slightly in later trading.

Abbey was hit by bad debts from an ill-fated move into corporate lending that targeted companies with low credit ratings.

While it worked well when the global economy was growing strongly the slow down has left the bank badly exposed, analysts said.

The company said it expected to shed jobs and was aiming to cut more than €294 million in costs from its core retail bank business.

Abbey's difficulties, whose roots go back to 1849, were contrasted unfavourably yesterday to its rival UK mortgage lenders such as Halifax Bank of Scotland, which had already announced very strong results, boosted by a significant performance by its Irish figures that were up 84%.

HBOS achieved its higher profits boosted by the UK's booming housing market.

Its decision to enter corporate banking, charging high interest rates to companies with low credit ratings - reaped rewards during the late 1990s boom, but the strategy turned sour as the bear market set in and bad debts soared.

That led to the removal last year of chief executive Ian Harley, who was replaced by Luqman Arnold, a former executive at Swiss bank UBS AG.

The group's financial woes tempted a bid approach last year by Bank of Ireland, which failed. Abbey also shook off a hostile bid by UK rival Lloyds TSB in 2001.

In the first set of results since Arnold took over, Abbey announced a 50% cut in its full year dividend adding that their future pay out policy would be uncertain until it completed its restructuring.

On the amount of jobs on the line an Abbey spokesman said: "We do not have a number".

Abbey confirmed it is going back to its roots and re-focusing its business on its profitable retail banking operations, which have benefited from Britain's booming house market.

"We start from a very strong position and have 16 million customers," said Mr Arnold.