Abbey in the habit of saying adios amigos

Published on Friday 28 July 2006 00:59

I S THERE anybody there? said the traveller, knocking at the moonlit door. The poetic line from Walter de la Mare could almost be applied to Abbey the way P45s have fluttered down like uncelebratory confetti since Spanish group Santander took over the British mortgage bank two years ago.

A total of 5,300 jobs have gone at the British subsidiary since then as Santander has sought to squeeze out 300 million of savings to take the sting out of the 8 billion acquisition price.

The pace of the jobs bloodletting also is exponential. The parent had targeted a further 2,000 people to be let go in the current year, and already achieved 1,300 of these by June, the bank said yesterday.

Retail bad debt provisions at Abbey may have shown a sharp rise, but most of the other numbers, from profits to cost-income ratio, are going in the right direction.

In fact, jobs pain aside, the return to Abbey of somewhat rude health over the past four years or so has been eye-catching.

Laid low by getting ideas above its expertise in the wholesale markets under Ian Harley some years back, Abbey was knocked into financial shape by Luqman Arnold and Stephen Hester in a series of sales and closures.

They then sold it on to Santander, having probably correctly decided that the Spaniards were better suited to retail banking, Abbey's natural habitat, than they were.

Santander have continued the work of simplifying the product offering and the language accompanying it in an apparently successful attempt to boost revenues.

It says a lot about Santander's success in squeezing the fruit while repositioning the tree that many observers expect it to make a play for one of Britain's other mid-ranking banks, like Alliance & Leicester.

Debate continues

LEGAL & General came in with solid rather than sparkling results.

But the numbers were good enough to suggest the interim insurance reporting season that L&G kicked off will mirror the strong sector results of six months ago.

L&G's figures, certainly in the UK anyway, are part of massing evidence that the insurance industry has undoubtedly put behind it the three-year downturn of stock markets of a few years back.

L&G's figures - headlined by a 17 per cent operating profit hike to 560m - were just the half of it.

Chief executive Tim Breedon said at the start of the year he felt industry growth might run at 5 to 10 per cent. He now believes it will be well into double figures.

All good stuff. But, as with all its rivals, L&G also stressed its new business sales - up 37 per cent globally, and 16 per cent in UK life and pensions.

This highlighting of new business has now become an issue, however, with companies and some analysts taking different stances.

To critics, new business places disproportionate emphasis on new customers at the expense of neglected customers who cash in their policies.

To the likes of consultancy KPMG and maverick commentator Ned Cazalet, new business gives a distorted view of the health of the operation, not noticing business leaving by the back door through cashed-in policies.

But the insurers say it is entirely valid.

To them, if a customer lapses one policy - say protection insurance - and takes another from the company, that is not a business outflow.

It benefits both parties, they say. The same applies to term assurance, where it can be cheaper to cash in one policy and take out another.

Switching out of bonds, ISAs etc, and giving the money back to the insurer in the shape of another investment product is also a valid indication of the company's health, is the argument.

The debate will run, particularly as long as the banks are widely seen as being better at keeping existing customers for longer than their cousins in insurance.