Abbey profits up a fifth as it takes nearly 30% of 2008 mortgage lending

06 February 2009 / by Rachael Stiles
Bucking the trend of banks announcing one loss after another, Abbey has revealed that its profits rose to £991million last year, an increase of more than a fifth compared to 2007 figures.

Abbey's parent group, Spanish bank Santander – which also owns Alliance & Leicester and the savings arm of Bradford & Bingley – has suffered writedowns as a result of borrowers struggling with repayments.

Abbey has also contributed to Santander's €3.57billion writedown as a result of its own bad debts, but has still come out on top, despite operating in what it has deemed a "very tough economic environment".

Abbey is one of the country's biggest mortgage lenders, and has become one of the largest savings banks after taking over Alliance & Leicester and acquiring Bradford & Bingley's savers.

In line with Government demands for banks to increase the amount they lend, Abbey lent 30 per cent more to small and medium enterprises that it did the year before, and took one in four new UK mortgages, compared to just eight per cent in 2007, as rivals dropped out of the market or set uncompetitive rates.

This mortgage share might be short-lived, however, with the merging of Lloyds TSB and HBOS to create Lloyds Banking Group. Until Abbey passed it last year, Halifax was the UK's biggest mortgage lender, and the new group is likely to take a bigger slice of the mortgage pie this year.

Savers have flocked to Abbey savings accounts, due to its status as a relative safe haven compared to other banks. Net savings accounts deposits were up 80 per cent, to £11.2billion.

"Abbey remains well capitalised and has capital resources well in excess of current regulatory requirements." it said in a summary of its market performance. "The outlook for the Long-term rating is Stable." it has been told, adding: "We’re in a strong position for future growth. The combination of Abbey, A&L and B&B creates a powerful UK financial services business."

Abbey has not escaped unscathed from the credit crunch, however. It experienced a 62 per cent increase in mortgage arrears last year, to 860, which it said was "anticipated due to worsening economic conditions and affordability constraints."

It has also taken precautions to protect itself and reduce the fallout from the economic turmoil – it is on track to cut costs by £180million by the end of 2011.

Antonio Horta-Osorio, chief executive of Abbey, has warned that there are tougher times ahead, despite so far managing to deflect the blows which have toppled other banks,

But nevertheless, Abbey is better positioned to weather the crisis than many of its rivals, with a lower than average proportion of bad mortgages on its balance sheet, and announcing much lower writedowns.

"2009 will undoubtedly be a very challenging year." Mr Horta Osario said, "Despite this, we are cautiously optimistic about our business prospects and are continuing to benefit from the strength of our parent company, Santander."

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