British mortgage bank Abbey National has delivered a shock profit warning, blaming bad debts provisions and write-offs at its wholesale division for a 'substantial' drop in earnings that hammered its share price.
Britain's sixth biggest bank also said sales of its with-profit-bonds, a type of long-term savings product, were below expectations partly because of shaken investor confidence in falling equity markets.
Abbey shares tumbled over 10% to £9.02 in early trade, their lowest level since September, as investors punished the group, which assured the market only two months ago that it was trading in line with market expectations. They were also unhappy that Abbey would rein in dividend growth this year.
A disappointing financial performance could put Abbey under the takeover spotlight, a year after it escaped a bid from rival Lloyds TSB. It also piled pressure on UK banking shares, which have been seen as a safe haven in tough times for stock markets.
'Profit before tax for the year is now expected to be substantially lower than current market expectations, and last year,' Abbey said in a statement, rushed out ahead of a presentation to analysts on its wholesale banking division, which includes corporate and treasury business.
'In particular, first half results are expected to show profits significantly below the second half of 2001.'
Abbey warned investors its rate of dividend growth would slow in 2002.
The bank's earnings suffered last year from losses on junk bonds and the collapse of U.S. energy firm Enron, with annual pre-tax profits for 2001 falling 2% to £1.9 billion sterling. Abbey has been scaling back risky investments as parts of efforts to turn round its wholesale bank.
