29th Apr 2008 07:30
Abbey National PLC29 April 2008 Abbey makes strong start to the year London, 29th April 2008 This statement provides a summary of the business and financial trends for thethree months to 31 March 2008. Unless otherwise stated, the trading (1) resultsof Abbey are compared to equivalent results for 2007. The first quarter 2008 results of Santander are also released today and can befound on www.santander.com. Abbey's results, on a Group basis, are includedwithin Santander's financial statements. Highlights • statutory profit before tax from continuing operations and trading profitbefore tax well ahead of the same period in 2007; • trading income growth was comfortably within the targeted 5 - 10% range,driven by a strong uplift in net interest income resulting from retail assetgrowth of 10%, despite market conditions, and an improved asset spread comparedto the final quarter in 2007; • mortgage balances were up 10% compared to the same period in 2007 with anestimated net lending market share of 15.9% in the first quarter, considerablyhigher than stock share. Relative to expectations, the stronger performance isdriven by a combination of higher gross lending and, as importantly, betterretention driving lower capital repayments. New business margins were more thandouble those seen in the same period in 2007, whilst maintaining prudent lendingcriteria. Abbey's high net lending share in Q1 reflects, in part, thecontraction of non-standard market segments where Abbey has negligible exposure; • resilient retail balance sheet performance reflecting Abbey's strong retailfunding mix (c. 60% customer deposit based, less than 10% of commercial assetsare funded by wholesale short term funding). During the quarter, Abbey'srequirement for short term funding was stable, with growth in retail andcommercial lending funded by deposit growth and a reduction in assets in itsglobal banking and markets operations; • trading expenses broadly in line with the same period in 2007; • trading provisions were ahead of the same period in 2007, in line withexpectations and coupled with prudent lending criteria; and • trading cost to income ratio of 47.0% (Q1 2007: 50.5%) continues to improvehaving achieved the average of the sector, and moving Abbey closer to the bestin class in the sector. Comment "We have made a strong start to the year despite the very difficult marketconditions. Abbey, as part of Santander, is well placed to meet the futurechallenges and to capitalise on opportunities. Abbey has been taking a balanced approach in managing its market share andprofitability, for several quarters now. From this platform, we have been ableto capitalise on the recent trends in the mortgage market, increasing bothvolume and margin together with a prudent risk criteria, consistent withSantander's traditional standards. We continue to benefit from our focus on theprime residential mortgage market, and only 3% of our new business is at an LTVof greater than 90%. We are funding the increased market share by both increased customer deposits,and by redirecting funding from our short-term markets operations to our retailbusiness, in terms of portfolio allocation. We are also continuing to broaden Abbey's proposition, through growing ourcurrent account base, credit card sales and business and corporate banking, allof which performed well in the first quarter. Through good balance sheetmanagement we are well placed to continue these positive trends into the secondquarter. Abbey's revenue growth remains comfortably within the targeted 5 - 10% range andwe have continued with stable costs. Our continuing focus on efficiency means weare on track to be below the sector average by the end of 2008 and can continueto share the benefits of our efficiency gains with customers throughcompetitive, value-for-money products. I am confident that Abbey will make further progress in 2008 towards our goal ofbecoming a fully-fledged commercial bank." Antonio Horta-Osorio, Chief Executive Financial results Abbey statutory profit before tax for continuing operations was well ahead ofthe same period in 2007. Trading income: Net interest income was significantly ahead of the first quarter in 2007, drivenby a good performance in Retail and Private Banking (previously WealthManagement). Retail Banking net interest income was up, despite challengingmarket conditions, reflecting strong asset and liability growth of 10% and 5%respectively. Deposit related income was particularly strong, in part benefitingfrom bank account growth. Mortgage lending in the first quarter was also strong,taking advantage of favourable pricing conditions, and continues to be focusedon high quality prime residential lending. Across both Retail and PrivateBanking operations, liability driven income is ahead of last year reflectingbalanced growth and margin management during 2007. Private Banking in particularbenefited from good growth in Cater Allen and James Hay brands. Non-interest income was slightly down compared to the first quarter in 2007,with a good performance in Retail Banking offset by a decline in non interestincome in Global Banking and Markets impacted by lower transactional flow.Retail Banking non interest income was broadly in line with last year withrobust investment sales, despite difficult market conditions, Credit Cards andGeneral Insurance trends offset by continued pressure on current accountcharges. Trading expenses: Trading expenses were broadly in line with the same period last year. Expensesare expected to be broadly flat through 2008. Trading provisions: In line with expectations, the mortgage provision charge is gradually increasingfrom an historical low, driving a modest increase in the Retail Bankingprovision charge. In the unsecured portfolio, mitigating actions taken last yearare delivering results, with a reduction in non-performing asset and levels ofwrite off. Credit quality remains strong, with the average loan to value (LTV) on newbusiness and stock remaining low at 66% (Q1 2007: 64%) and 48% (Q1 2007: 45%)respectively. Only 3% of new business has an LTV of greater than 90%, and Abbeyhas no exposure to sub-prime mortgage lending. There has been a small increase in absolute terms in the stock of properties inpossession to 625 (Q1 2007: 528) albeit from historically low levels. In termsof 3 month plus arrears, the increase to 8,195 (Q1 2007: 7,061) was anticipatedfollowing base rate rises. Abbey remains significantly better than the industrybased on the most recent CML figures for both. Reorganisation expenses and other charges: Restructuring costs and other non-trading items were significantly lower thanthe same period in 2007. Business flows Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 2007 2007 2007 2007 2008 Gross mortgage lending (£ bn) 7.5 9.3 10.2 8.6 8.9Capital repayments (£ bn) 6.3 7.1 6.9 6.6 5.9Net mortgage lending (£ bn) 1.3 2.2 3.3 2.0 2.9Stock (£ bn) 102.9 105.1 108.4 110.4 113.3 Market share - gross lending 9.0% 10.0% 10.3% 9.8% 11.8%Market share - capital repayments 10.8% 10.9% 10.2% 10.3% 10.5%Market share - net lending 4.9% 7.7% 10.8% 8.5% 15.9%Market share - stock 9.3% 9.3% 9.3% 9.3% 9.4% Retail net deposit flows(£ bn) (2) 0.8 1.1 0.7 0.6 0.8Investment sales - API (£ bn) 0.4 0.5 0.4 0.4 0.4 (excl. intermediary sales) Bank account openings (000s) 108 109 111 102 124Abbey branded adult bank account openings (000s) 60 65 66 65 86Abbey branded average current account liability 5.0 5.0 5.2 5.3 5.2(£ bn)Total gross UPL lending (£ bn) 0.3 0.3 0.3 0.2 0.3Credit card sales (000s) (3) 70 27 27 137 119 Main highlights for the three months to 31 March 2008 (compared to the sameperiod in 2007 unless otherwise stated) include: • gross mortgage lending of £8.9 billion, 18% higher, with an estimated marketshare of 11.8%. This improvement reflects success across both direct andintermediary channels, with new business margins well ahead of the same periodlast year; • capital repayments of £5.9 billion, 6% lower, reflecting a strong performancedriven by both excellent retention activity and current market conditions.Abbey's estimated market share of capital repayments of 10.5% is in line withboth 2007 and 2006 full year market shares; • net mortgage lending of £2.9 billion, more than double the same period lastyear and equivalent to an estimated market share of 15.9%, is considerablyhigher than stock share. Abbey has capitalised on the improved market conditionswhilst at the same time actively reduced repayments. The high net lending sharein the first quarter reflects, in part, the contraction of non-standard marketsegments where Abbey has little or no exposure; • net customer deposit flows of £0.8 billion were in line with last year despitefierce price competition in the market and volatility in bank account balances.Abbey's performance has been driven by a continued focus on branch-based savingsand the tax year campaign led by Abbey's market leading 10% Super ISA and 6.25%Direct ISA, as well as a strong performance in its Private Banking businessincluding Cater Allen; • investment sales were up 7% despite difficult market conditions. Performancewas driven by a competitive range of investment products, linked propositions(with market leading Savings accounts) and a strong promotional campaign inMarch. In addition, the number of sales advisors has been increased following asuccessful recruitment campaign in Q4'07 and Q1'08; • Abbey has been successful in achieving its targeted uplift in the level ofbank account openings, up 15% and continuing to attract adult customers, up 44%,and switcher customers, up 48%. Abbey sees the current account relationship as akey driver of a customers overall experience with the bank and has increasedfocus within its branch and remote channels on developing business in this area.The continuation of the market leading 8% offer to switchers and non-switchershas supported this growth; • total gross UPL lending decreased by 17% reflecting Abbey's revised pricingand scorecard. Abbey continues to focus lending mix towards existing customersand through the branch channel which has contributed to higher UPL stock marginsresulting in an increase of 87bps versus the same point last year; and • credit card sales have been strong, up 70% benefiting from attractive headlinerate, promotional activity and sales focus through the branch channel. (1) Trading profit before tax is management's preferred profit measure whenassessing the performance of the business. It is calculated by adding backreorganisation expenses and other charges from profit before tax. (2) Retail deposit net flows exclude certain liability flows that relate tocorporate banking balances. If these items had been included, total net depositsflows would have been; Q1 2007: £0.8bn; Q2 2007: £1.0bn; Q3 2007 £0.8bn; Q4 2007£0.3bn; Q1 2008 £0.8bn. (3) Credit card openings prior to Q3 2007 were opened through Abbey'srelationship with MBNA. Cards are now issued through Abbey's relationship withSantander Cards Ltd (UK). Abbey & Santander Abbey National plc ("Abbey") is a wholly owned subsidiary of Banco Santander,S.A. ("Santander") (SAN.MC, STD.N). Founded in 1857, Santander has more than 60million customers, over 11,000 offices and a presence in over 40 countries. Itis the largest financial group in Spain and is a major player in Latin Americaand elsewhere in Europe, including in the United Kingdom (through Abbey) and inPortugal. Through Santander Consumer it also operates a leading consumerfinance franchise in Germany, Italy, Spain and ten other European countries. Santander has a secondary listing of its ordinary shares on the London StockExchange and Abbey continues to have its preference shares listed on the LondonStock Exchange. Nothing in this press release constitutes or should beconstrued as constituting a profit forecast. Disclaimer Abbey and Santander both caution that this press release may containforward-looking statements. The US Private Securities Litigation Reform Act of1995 contains a safe harbour for forward-looking statements on which we rely inmaking such statements in documents filed with the US Securities and ExchangeCommission. Such forward-looking statements are found in various placesthroughout this press release. Words such as "believes", "anticipates", "expects", "intends", "aims" and "plans" and similar expressions are intended toidentify forward looking statements, but they are not the exclusive means ofidentifying such statements. Forward-looking statements include, withoutlimitation, statements concerning our future business development and economicperformance. These forward looking statements are based on management's currentexpectations, estimates and projections and both Abbey and Santander cautionthat these statements are not guarantees of future performance. We also cautionreaders that a number of important factors could cause actual results to differmaterially from the plans, objectives, expectations, estimates and intentionsexpressed in such forward-looking statements. These factors include, but arenot limited to, (1) inflation, interest rate, exchange rate, market and monetaryfluctuations; (2) the effect of, and changes to, regulation and governmentpolicy; (3) the effects of competition in the geographic and business areas inwhich we conduct operations; (4) technological changes; and (5) our success atmanaging the risks of the foregoing. The foregoing list of important factorsis not exhaustive. When relying on forward-looking statements to make decisionswith respect to Abbey or Santander, investors and others should carefullyconsider the foregoing factors and other uncertainties and events. Suchforward-looking statements speak only as of the date on which they are made, andwe do not undertake any obligation to update or revise any of them, whether as aresult of new information, future events or otherwise. Statements as tohistorical performance, historical share price or financial accretion are notintended to mean that future performance, future share price or future earnings(including earnings per share) for any period will necessarily match or exceedthose of any prior year. This announcement is not a form of statutory accounts. Contacts Matthew Young (Communications Director) 020 7756 4232 Anthony Frost (Head of Media Relations) 020 7756 5536 Bruce Rush (Investor Relations) 020 7756 4275 Simon Donovan (Investor Relations) 020 7756 4476 For more information contact: ir@abbey.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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