New hope for Abbey's loyalists

Abbey traded in its passbook 15 years ago and converted from a building society to a bank, in the process rewarding 5.5 million members with at least 100 shares valued at 130p each. Many baled out at the first opportunity, but 1.7 million remained loyal.

Their Abbey habit has proved costly. From a peak of £14.35 in April 1999, the shares slumped as low as 317p in March last year, and when small shareholders watched directors getting fired with multi-million pound payoffs, they must have thought nobody cared about them.

Well, now somebody does. Banco Santander, which is taking over Abbey, really does turn banking on its head, as Abbey's slogan has it.

An offer of one euro-denominated Santander share plus 31p cash for each Abbey share may not seem the greatest deal, but think again.

As well as offering discounts on Spanish ham and cheese and special insurance deals for shareholders, Santander pays dividends quarterly because it believes they prefer a regular flow of income. These payouts have grown by an average 10% over the past ten years, which admittedly is not as good as Abbey's record, but there is potential.

Santander wants to make life simple for Abbey's shareholders. They will receive dividends in sterling and a special high-interest account will be made available to reinvest the proceeds in Santander shares. It will be possible to sell the bank's shares through Abbey's 741 branch network.

The annual meeting will obviously be held in Spain, but UK-based shareholders will still be able to have their say. Santander believes in regular contact and its board members travel across Spain every three months to chat to small shareholders. It will do the same here.

Since its takeover discussions were revealed, Santander's shares have fallen more than five%. A similar fate befell the shares of Royal Bank of Scotland after it bought NatWest. The price remained depressed until the Scottish bank revealed its prodigious ability to rip costs from its prey. Then the share price rocketed.

Santander knows first hand how well that deal succeeded - it helped Royal Bank with the funding - and expects its own to work just as well. If not better.

Abbey is definitely flabby - its head office costs more to run than the entire branch network of rival Northern Rock - so Santander has lots of scope to wield the knife. It has already noted that 33% of Abbey's staff work in the middle and back office, against 12% in its own operations. There will be some redundancies, but many back office staff will be put into the branches to help customers. Because life's complicated enough.