Abbey National buying life group

Abbey National will have substantial scope for cost cuts

British banking group Abbey National is reported to have won a battle to acquire life and pensions group Scottish Provident.

The £2bn ($2.9bn) deal, expected to be announced formally later this week, marks the end of a five-month auction for the Edinburgh-based mutual.

Abbey National is thought to have beaten the mutual Royal London and the Bournemouth-based friendly society Liverpool & Victoria in final bidding over the weekend.

Scottish Provident's 300,000 policyholders are expected to receive windfalls of £5,000 each from the deal when it is completed next year.

Business diversification

The acquisition, which will make Abbey National the UK's largest seller of life insurance and income protection policies, signals the firm's intention to diversify away from its core mortgage business into other financial services.

The bank has said that it wants to generate about 65% of profit outside savings and mortgages.

Earlier this year, it said about 50% of earnings were not mortgage and savings-related. This figure would rise to about 60% with the Scottish Provident acquisition, industry analysts said.

Analysts had previously valued Scottish Provident at £1.25bn-1.4bn.

Attractive proposition

However, they said the company's 30% share of the life and income protection market made it an attractive proposition to bidders.

Abbey National would also have substantial scope to cut costs because of synergies with its existing network of independent financial advisers.

Some media reports said that up to 500 jobs could be lost from a combined workforce of 4,000 if the back offices of Scottish Provident and Scottish Mutual - the Glasgow-based life assurer Abbey National bought in 1992 - were combined.

Scottish Provident's 38% stake in Aberdeen Asset Management, estimated to be worth £300m-400m, will be sold before the Abbey National deal is completed, the Financial Times reported.

The report said the fund manager would continue to handle the £10.5bn of funds under Scottish Provident's control and may win a deal to sell some of its investment products through Abbey National branches.