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Wednesday, 14 February, 2001, 16:07 GMT
The battle for Abbey National

Abbey National is doing its best to fight off the takeover bid from Lloyds TSB, but BBC News 24's business presenter Declan Curry wonders how much the UK bank is truly committed to its independence.

Britain's latest banking battle is getting more heated.

On Wednesday Abbey National, fighting off a takeover bid from Lloyds TSB, rushed into the market double-quick, trumpeting an 11% rise in profits last year.

The Abbey's results were not due for publication until next week, but the bank decided late on Tuesday to release the numbers early.

The official reason for the diary re-jig was to avoid a clash with a key date next week in the takeover timetable.

Getting ready for the fight back

Older hands, however, are nodding their heads knowingly, as now the numbers are out in the open early, the Abbey is released from the traditional pre-results silence, and can open up on the Lloyds bid if it chooses too.

For now, though, the Abbey is doing nothing to distract attention from its healthy-looking bottom line.

The country's second biggest mortgage bank made slightly more profit than the City had been expecting, turning in 1.97bn before tax. The hint that it wants its shareholders to take is that the bank is doing nicely without any help from Lloyds, thank you very much.

Picking apart the figures

Crucially, the company is getting more of its profit from things other than mortgages and savings.

There's not much money to be made from the old staples nowadays. Savings accounts have become much more expensive for the banks to run, as competition from new institutions like Egg and Smile have forced the old timers to pay more back to their savers in interest.

At the other end, the amount of money they make from mortgages has been slashed by a cut-throat price war between the lenders, which has led to much lower rates for borrowers.

So when the bank says that its profits from things like life assurance are up by 29%, the City cheers.

But there are some creatures crawling under the stone.

The Abbey snared 8% of all new mortgages in 2000; more than some rivals, but well below its performance in the past.

Thanks to the mortgage hangover from its good old days, Abbey National still has 13% of all existing mortgages.

Its profits in its high street banking business - current accounts, cheque books and branches - are being squeezed; they're rising by just 5%. And the overall 11% rise in group profits is rather puny when compared with the 42% rise from Barclays last week.

So all may not be as rosy as it seems.

Little City enthusiasm

While it looks like the Abbey has engineered a major change in its business so that it makes more from things like wholesale banking than it does from the High Street, that may be less to do with a good performance at the wholesale side, and rather more to do with a miserable showing at its traditional banking heart.

In the City, investors greeted the figures without much enthusiasm. Abbey shares traded in the red for most of the day.

Two more little quirks to watch.

The more the City thinks the Lloyds bid might fail, the further the Abbey share price will drop. The stock is now some 3.5 times the lowest price it reached during the past 52 weeks, and much of that recovery is based on takeover mania.

Any hint that the Lloyds deal could be blocked by the competition authorities, or any suggestion that Abbey might be winning its shareholders over to its side, will almost certainly lead to a big sell off.

So the harder the Abbey trumpets any good news, the bigger the share fall will be.

Are you committed?

The other thing is this - just how committed are the Abbey's bosses to the fight for independent survival?

They've been in merger talks with the Bank of Scotland for ages, so they're not fanatically attached to the notion of complete and resolute independence.

And they have rejected the Lloyds deal, not because it was a bad for the industry, but because the price is too low.

The Abbey bosses become speechless when asked for another reason.

The suspicion is that the Abbey bosses are just holding out for more loot, and would throw in the towel if Lloyds or another Continental or American bidder came in with a big enough bag of swag - provided of course that they were given the right padded chairs in the boardroom.

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See also:

14 Feb 01 | Business
Abbey posts record profits
07 Feb 01 | Business
Abbey rejects Lloyds bid
06 Feb 01 | Business
BoS says Abbey talks go on
04 Feb 01 | Business
BoS 'threatens to quit Abbey deal'
14 Nov 00 | Business
Abbey targets the 'mass affluent'
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