1,300 Abbey jobs cut as bad debt provision rises 30%

Published on Friday 28 July 2006 00:59

SPANISH bank Santander has cut 1,300 jobs so far this year at its British arm Abbey, as the bank also announced a 30 per cent jump in retail bad debt provisions.

That came as part of an overall bad debt charge up 10 per cent. The worsening bad-debts scenario accompanied Abbey's half-year results to end-June, when the British subsidiary's net attributable profit rose 40 per cent from a year ago to 491 million (336m).

Abbey said a third of the sharp increase in retail provisions related to mortgages "increasing modestly from a very low base". The rest of the increase in retail provisions was in unsecured loans, including credit cards.

However, Abbey said its exposure to the more risky specialist lending segments of the mortgage market remained negligible.

It said: "On all measures, the quality of the [mortgage] book remains better than industry averages and broadly in line with expectations."

The latest redundancies mean 5,300 jobs have been cut since Santander's 8 billion takeover of Abbey two years ago. Santander said earlier this year up to 2,000 Abbey jobs might go this year.

The Spanish owner has already said that it is targeting cost-savings at the British subsidiary, formerly known as Abbey National, of 300m by the end of 2007.

The job cuts helped Abbey to reduce expenses in the first half of this year by 5 per cent from a year ago, slashing costs as a ratio of income to 56.5 per cent from 63.5 per cent. It is aiming to bring the ratio down to the industry average of 45-50 per cent.

Abbey, Britain's second biggest mortgage lender, said its net new lending in the first half was 4.2bn, or an 8.4 per cent market share, up from 5.8 per cent in the second half of 2005 and up just 0.3 per cent a year ago.

The bank said that the underlying trend of trading income was in line with targeted revenue growth of between 5 and 10 per cent.

It said: "The retail business continued to benefit from stable margins, accelerating asset growth and increased fee income." It said the overall outlook remained positive.

Santander chief executive Alfredo Saenz said of Abbey's results: "Revenues are gaining traction." He said the results were in line with targets, which see the British lender making net profit of 1bn this year.

Groupwide, Santander beat forecasts with second-quarter net profit of 1.72bn, up 26 per cent thanks to strong growth in Latin America and better margins at home.

For the first half, net profit totalled 3.22bn, also up 26 per cent from a year earlier, while net interest income came to 5.96bn, up 21 per cent. One Spanish analyst said: "These results are very good and should push the shares up." Abbey shares yesterday closed up 6.5p at 585p.