pounds 1bn-plus Abbey National eyes acquisitions

JAbbey National set its sights on acquiring a life mutual company as it6 announced yesterday a 10 per cent increase in pre-tax profits to take it for the first time just past the pounds 1bn mark.

Peter Birch, chief executive, said: "We are looking very carefully at the life and pensions market. We are not in immediate discussions and there's nothing immiment, announceable," he added in response to questions about a possible link-up with Clerical Medical, which is looking for a buyer.

Last week NatWest Group targeted the pensions and long-term savings sector as a priority for expansion, arguing that demographics and the pressure on state budgets meant that the potential for growth in this sector were enormous. Some building societies that have recently announced their intention to convert to bank status next year have also indicated an interest in expanding their life insurance business.

Abbey National, the first building society to convert to plc status back in 1989, yesterday hit out at last week's surprise mortgage rate cut by Nationwide, one of the biggest building societies which remains committed to mutuality.

Mr Birch called the move short-term and a sign of panic. The mortgage market has seen fierce competition, as lenders compete amidst low volumes in the sluggish housing market. Abbey decided to leave its standard variable mortgage rate unchanged at 7.49 per cent.

Mr Birch said: "We are always concerned about competitors and we watch them very carefully but we compete. Our mortgages may be out of line for a matter of days but we do compete."

Abbey judges the Nationwide's raising of lending rates and cutting of mortage rates, designed to defend mutuality and entice new business, as a short-term ploy that, if continued over time, would seriously deplete the building society's resources and ability to invest in the business.

Mr Birch conceded that Abbey lost mortage market share in 1995. Abbey has 12 per cent of total mortgage stock in the UK, but last year it only took 9.2 per cent of new business. "There's no point going into the mortgage market when everybody else is giving everything away," he said. He said the fastest-growing area of Abbey's business was in treasury and offshore, where pre-tax profits rose 14 per cent.

Abbey said it plans to take pounds 50m a year in costs out of National & Provincial, the building society, from the first year of its incorporation into the bank. N & P members are due to vote on the acquisition in April, and Abbey expects to complete the merger by August. The cost savings would come through a number of areas, primarily branch closures, but also merging IT systems, marketing, accounting and auditing. N & P has 330 branches at the moment.

"When we acquire them about 100 branches will close overnight and the staff will be transferred to Abbey National," Mr Birch said. Abbey raised its full-year dividend by 23 per cent to 21.75p. Abbey shares closed down 14p at 583 yesterday in a weak market.