Profits and promises at Abbey

THE clock in Luqman Arnold's office must be ticking more loudly with every day. The chief executive of the Abbey National banking group will next week unveil the company's first profits for two years and he hopes to draw a line under all its nasty risks. But he is still a long way off demonstrating that his turnaround strategy is bearing fruit.

To be fair to Arnold, he always said it would take three years to haul Abbey back to something resembling a normal banking institution rather than a basket case. Abbey, it emerges, was much closer to the brink than any of us had previously appreciated, thanks to the concentration of risk in its wholesale business.

And Arnold has always said that the first half of the revival programme would be pretty bloody - a promise he and his bank have lived up to in spades.

Yet I understand that Arnold will use his interim results presentation to try to convince shareholders that the green shoots of recovery are finally beginning to emerge.

Opinion surveys by both the industry and within Abbey are starting to suggest that customers are warming to Arnold's proposition, having given him unremittingly depressing feedback until the past few months.

That almost certainly owes something to Arnold's rather belated acceptance that people like discounts and rewards as well as improved service, jazzy new headed stationery and a blizzard of advertising.

Rivals have moved pretty quickly to steal Arnold's thunder - Barclays is putting more people back into its branches and HSBC has sharpened up its customer services.

Abbey still has a head start, though training the workforce to give advice rather than just taking people's money over the counter is taking longer than expected and will run until the latter part of this year.

So while customers may be starting to feel happier about Abbey, Arnold is still some way short of demonstrating that softening sentiment will translate into hard sales.

And he knows that is the only thing the City cares about.

He is also acutely aware that his shareholder register is far from serene. Yes, his turnaround strategy has the backing of some substantial long-term investors, but there has been considerable activity recently from arbs - predatory arbitraging hedge funds - looking for takeover action.

And holders of Abbey paper who remember their shares touching £13.05 can still be moved to fury that the bank's history of saying no to potential bidders has cost them dear - even though the share price at 484p still has a significant bid premium built in.

Last spring, Banco Santander was the latest to make an approach, and Arnold - a former investment banker - knows that shareholders would bay for his blood if he did not talk to anyone and everyone who came knocking.

I believe Arnold when he says that he and his management team have taken no shortcuts with their recovery programme and that the business has not been run to maximise short-term profits, nor have the figures been massaged in the hope of attracting predators.

After all, £1.7bn of losses is hardly a conventional way to showcase an organisation's jewels.

So possibly the arbs have got it right - Abbey shares represent a good each-way bet.

Either Arnold fulfils his recovery strategy and the bank's revenues and profits start to climb, driving the price higher.

Or he starts to falter and someone puts everyone out of their misery with a takeover offer.

... and Marks & Spencer

AS WE draw a line under the Marks & Spencer takeover saga now Philip Green has packed up his virtual bid and headed for the beach, there are worrying words from Stuart Rose, the group's new chief executive.

He says he is not reckoning on being able to increase the High Street giant's sales.

He might simply be trying to massage shareholders' expectations. But to talk of being overtaken by Next as the country's biggest clothing retailer is hardly the rallying call investors had been hoping for from a man who, after all, won them over by his reputed retail genius. Rose last week pretty much outlined the cost savings he expects to secure, so the group should be heading back towards profits of £1bn again.

But if he has no vision to keep the top line moving upwards, shareholders might just as well have snaffled Green's £4 a share . . . and given it to Simon Wolfson, the youthful boss of Next, who does appear to believe in sales growth.