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Abbey National was the first of the British mutual building societies to seek a wider market by converting to bank status in 1989. In 1996, it launched a takeover of another society, National & Provincial, for £1.35bn, catapulting it into the ranks of the country's leading financial service businesses. In 2000 it opened merger talks with Bank of Scotland, but was itself quickly targeted itself by an acquisitive Lloyds TSB. In the end neither deal materialised and Abbey remained independent. The group reported two years of horrendous losses for 2002 and 2003 as a result of a disastrous move into wholesale banking, and it was acquired soon afterwards by Grupo Santander of Spain, who engineered a remarkable turnaround of the struggling business. During 2008, Santander further expanded its presence in the UK acquiring two rival lenders, Alliance & Leicester and Bradford & Bingley, both of which were absorbed into Abbey. All three British names were phased out during 2010 in favour of a unified Santander UK branding.
Abbey National was formed in 1944, following the merger of two very much smaller building societies. The first Building Clubs were founded in Birmingham in 1775. These were cooperative syndicates in which a group of individuals, usually industrial workers, pooled their savings in order to buy land and build housing for themselves. Generally, when the last member of the club moved into his new home, the cooperative was disbanded. However it soon became obvious that members wanted to continue saving even after they had acquired their home. As a result, the first "permanent" building society was established in 1845. This allowed individuals who had already built their own home to lend their savings to other would-be homeowners by way of the society, in return for regular payments of interest. There were other advantages to saving as well. At the time, the right to vote was restricted to individuals who owned freehold land worth more than 40 shillings a year. Workers who didn't want to own their own house could instead use membership of the club to establish their right to vote, and building societies quickly became one of the cornerstones of the new political reform movement.
The National Freehold Land & Building Society was among the first of these permanents, founded in London in 1849, and within 10 years had accumulated what was then the very substantial sum of £1.5m in savings, buying large plots of land in the suburban areas around the city on which it built extensive housing estates for its members. The Abbey Road & St John's Wood Permanent Benefit Building Society was established some 25 years later in 1874. It had the distinction of owning not only one of the longest names but also, somewhat later, offices at number 221b Baker Street in London, the fictional address of celebrated detective Sherlock Holmes. (Bizarrely, Abbey National continued to receive mail addressed to Sherlock Holmes until the bank left Baker Street in the late 1990s. It maintained a tradition of replying to all enquiries with a standard letter explaining that the famous sleuth was tied up on a case and was unable to reply in person).
Both associations prospered, beginning to open branches outside London in the 1920s. They joined forces as The Abbey National Building Society in 1944. After World War II, the purpose of building societies was altered by the new Labour Government which took upon itself the responsibility for building what became known as "council" housing, and placed restrictions on the private development of land. As a result, the societies gradually ceased to build houses, but came to specialise instead in property-related loans, or mortgages.
Even before it was demutualised, Abbey National had a tendency to operate independently of other societies. It withdrew from the cartel on mortgage rates in 1983, and was the first society into Europe five years later. A Spanish office was established in 1988 (but sold ten years later), followed by Abbey National Italy in 1989 and France in 1990. But by far the most controversial step was Abbey's conversion into a stock-based company following the deregularisation of the British financial services market in 1986. Until then building societies had enjoyed a monopoly of the mortgage lending market, but were prohibited from offering insurance and ordinary banking services. Deregularisation removed restrictions on all three types of business, sparking off a wave of consolidation within the sector.
Fearing it would be overtaken in the mortgage sector by mainstream banks, Abbey made history by converting itself from a mutually owned cooperative into a limited company. In 1992 the company added insurance services to its portfolio by acquiring life insurer Scottish Mutual, with a strong market among independent financial advisers. In 1993, it launched its own brand, Abbey National Life. General insurance followed in 1994 in partnership with Commercial Union. Between 1994 and 1996, the bank broadened its portfolio with the acquisition of a series of other companies including mortgage lender Household Mortgage Corporation (HMC), health insurer Pegasus Assurance, car and home improvement lender First National Finance, and used car financier Wagon Finance Group.
The 1996 merger with National & Provincial was another huge step forward, giving the group almost 15% of the mortgage market. In 1997, the bank acquired money market and offshore broker Cater Allen Bank for £195m. In the late 1990s turbulence in the banking sector led to further talk of merger. Abbey failed to win life assurance group Scottish Amicable in 1997, losing out to the Prudential Corporation. A merger approach from NatWest in mid-97 was quickly rebuffed. Instead the company bolted on other arms including TSB Factors in 1998 (renamed First National Invoice Finance). Later that year, Abbey paid NatWest £347m for three of its Lombard specialist consumer credit companies and tied up with supermarket chain Safeway to offer in-store financial services at Safeway outlets.
In 1999, in common with other UK banks, Abbey began moving away from traditional branch service to telephone and internet sales, as well as other financial services. The group announced it would close 20% of its retail branch counters, although it also promised no redundancies from the action. In early 2000 it announced the launch of online bank Cahoot.com, and set a target of generating 60% of profits from non-retail services. The bank also added a sizeable new asset to its portfolio with the £1.4bn acquisition from travel group Stagecoach of Porterbrook, one of the three train leasing companies created when British Rail was privatised. A few months later, Abbey widened its service offering with the purchase of life insurer Scottish Provident for £1.8bn.
Later that year, the bank said that it was keen to seek a merger partner, opening talks with a reluctant Bank of Scotland. Those negotiations provided the spur for rival Lloyds TSB to launch its own takeover bid for Abbey National. The three-way negotiations dragged on through the winter, but the interference by Lloyds TSB finally stymied talks between Abbey and BOS. In 2001, Abbey formally abandoned its takeover of BOS, after a renewed offer from Lloyds TSB of around £17bn ($25bn). However the government then stepped in, blocking the Lloyds bid on competitive grounds. In the meantime, Abbey made a few changes to its own portfolio, outsourcing its credit card operation to US card specialist MBNA, and doubling the size of its wealth management operation with the purchase of Fleming Premier Banking from JP Morgan Chase.
However an aggressive move into corporate banking was to prove disastrous. Abbey National Wholesale Banking was established to operate in international financial markets, lending money for mergers and acquisitions and the building of schools and hospitals, and creating risk management solutions using derivatives. But it was hit hard in 2002, first by the collapse of Enron to whom it had lent funds, then again by an ill-judged venture into US junk bonds. In mid 2002 the group issued a shock profit warning, which led to the ousting of chief executive Ian Harley. In the months that followed, the group was continually stalked by potential purchasers, including National Australia Bank and Bank of Ireland. In 2003, the group restructured again under newly appointed CEO Luqman Arnold. He identified a number of non-core assets which could be sold off to generate cash, including consumer loans and leasing service First National (sold to General Electric), and Abbey's remaining international subsidiary in Italy. Determined to regain lost ground and maintain its independence, the bank rebranded itself under new name Abbey and launched a new marketing campaign in which it promised to "turn banking on its head, helping everyone, not just the privileged few, get on top of their money". The group's disastrous foray into corporate banking created two years of horrendous losses in 2002 and 2003 totalling more than £1.6bn. However there was a welcome return to profitability in 2004.
Behind the scenes, however, Abbey was still interested in swapping its independence for greater stability. In 2004, the bank announced that it was recommending to its shareholders a takeover bid from Banco Santander Central Hispano worth £8.5bn, mostly in the Spanish bank's shares. Other groups, including Citigroup, HBOS and RBS, were said to be watching developments with a keen interest, but no rival bid emerged, and the Spanish deal was approved at the end of the year. In an echo of the bank's past troubles, Abbey was fined £800,000 in May 2005 for mishandling customer complaints about underperforming endowment mortgages between 2001 and 2003.
Following completion of Santander's takeover, Francisco Gomez Roldan was appointed as group chief executive, but resigned suddenly in 2006 as a result of ill-health and died shortly afterwards.
Last full revision 11th October 2017
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