£250m write-offs drag on Abbey

ABBEY National has been forced to write off more than £250m against risky investments in its wholesale banking division.

The group today unveiled a fall in profits for 2001 and gave a warning on profits growth in the current year. '2002 is not going to be a happy hunting ground for banks,' said chief executive Ian Harley.

Abbey blamed Enron, the US economy and its consumer finance division for last year's weakness and said that this year's results would be hit by a range of factors.

These include falling profitability in the core retail bank, an attempt to make the wholesale banking division less risky and concerns about the outlook for Britain and the US.

Pre-tax profits fell 2% to £1.94bn in 2001 as wholesale banking profits sank 12% to £504m. The decline was prompted by a £95m write-off against Enron, revealed late last year, and a £161m write-off against other investments. Abbey shocked the City last August with a £64m provision against US investments. A further provision of £97m has since been made.

'We hope provisioning has peaked in the wholesale bank. It all depends on the US economy though,' said Harley.

The long-standing head of wholesale banking, Gareth Jones, resigned last October and was replaced by Abbey's finance director Mark Pain.

(He intends to reposition the business, reducing the amount of money invested in securities and focusing more on lending and other customer-related activities. The change will hit profits this year.

Results for 2002 will also suffer as Abbey attempts to make its retail bank more popular by driving down prices on products such as mortgages and improving interest rates on current accounts.

Last year, the retail bank delivered modest profits growth of 2% to £1.3bn and Abbey expects this trend to continue. The spread between loan rates and saving rates narrowed from 2.01% to 1.86% and is expected to shrink to just above 1.65% this year. The bank is hoping for stronger profits growth in this core business from 2003.

Last year's results were also affected by a 47% slump in the profits of consumer finance and leasing business First National to £92m. The group intends to manage this business more tightly.

Abbey also revealed it spent £26m on abortive merger talks with Bank of Scotland and its successful defence against the bid from Lloyds TSB.

The dividend is increased by 10% to 50p.

Abbey's bad habit