City marks Abbey down by 7%

ABBEY NATIONAL saw its shares tumble 7 per cent yesterday, despite announcing a solid set of earnings. Analysts were disappointed by the absence of special shareholder payouts and increased bad debt provisions.

The former building society, which reported a 19 per cent rise in 1998 pre-tax profits to pounds 1.52bn, said it would retain capital in its business rather than follow the example of rivals such as Halifax and return surplus cash to shareholders.

Ian Harley, Abbey chief executive, said he would consider giving capital back to shareholders only if the money could not be used efficiently elsewhere and if at least pounds 500m could be returned over an 18-month period. Analysts were disappointed the bank decided against awarding a special dividend, and Abbey shares ended the day down 85p at 1,251p.

"There was nothing in the results that was extra to expectations," said Hugh Pye, banking analyst at Robert Fleming Securities.

Mr Harley said the fall in the share price partly reflected the sharp increases recorded prior to yesterday's results. He said: "I don't think there's anything we've said today that would justify that fall in price, but the market is fickle."

Abbey shares dragged down the rest of the banking sector and the FTSE 100, which closed down 43.7 points at 6,031.2.

Several analysts were concerned about Abbey's bad debt provisions, up by pounds 80m to pounds 201m.

Abbey said the increase partly reflected the exceptionally low levels of bad debt seen in 1997 and that, going forward, it did not expect any substantial increase in arrears.

Mr Harley indicated that the bank's preference would be to acquire a smaller life insurer or asset manager than to link up with a major European or UK rival. He said: "It's difficult to justify crossborder mergers. Quite what value would be added is hard to see."

Lord Tugendhat, Abbey's chairman, said: "I'm sure we will make further acquisitions but they have to add value and fit in with our strategy."

Abbey's share of net mortgage lending rose from 3.3 per cent to 5.9 per cent, although the chief executive said he would not be unduly concerned if its mortgage market share failed to rise further in 1999.

Mr Harley added that Abbey borrowers should not automatically expect further falls in base rates to be translated into lower mortgage rates, saying the bank had to consider its savers. "Savers will become a greater issue as rates fall,".

Costs for year 2000 compliance and euro preparation grew by pounds 40m to pounds 68m. The dividend increased by 15 per cent to 35.3p per share.