LONDON — The new chief executive officer of Abbey National PLC, Britain’s second-largest mortgage lender, is to tell shareholders Wednesday what he has discovered about its books in five weeks on the job.
Abbey’s shares have dropped 34% this year because of concern about bad loans and tumbling stock markets. On Monday, Standard & Poor’s changed it credit rating outlook for the company to “negative,” saying management must demonstrate that it is improving earnings and reducing risks.
The new CEO, Luqman Arnold, “has to set out the worst scenarios and put some numbers on those scenarios,” said Richard Peirson, who helps manage $6.3 billion at Framlington Investment Management, which holds Abbey shares. Mr. Arnold “also needs to say how he can grow the business,” Mr. Peirson said.
Mr. Arnold, who is 52, was the president of UBS AG, Switzerland’s biggest bank, where he won praise from investors for keeping a lid on costs. He left last December after a dispute with chairman Marcel Ospel.
At Abbey he succeeded Ian Harley, who was fired after surprising investors by saying holdings in companies such as the bankrupt Enron Corp. would drag down profits this year.
Mr. Arnold may reduce Abbey’s dividend to preserve capital, analysts said. “The market likes clarity, and shareholders might be happier knowing what the dividend cut is if they are confident that management can see through the company’s problems,” said Ross Watson, who helps manage more than $31.6 billion at Aberdeen Asset Management, which also holds Abbey shares.
Though Abbey’s finance director, Stephen Hester, said in July that he did not plan to lower its dividend, the company may have to do just that. No U.K. rival pays a dividend yield as high as Abbey’s 7.5%.
Merrill Lynch & Co. analyst John-Paul Crutchley said last week that he expects Mr. Arnold to cut the dividend by 40%. Mr. Crutchley also estimates that Abbey would post a 2002 pretax loss of almost $2.4 billion, compared with earnings of $3 billion last year.
Other analysts expect job reductions. In July the company indicated that it might cut jobs and sell units to revive earnings. Among the businesses for sale is its First National consumer-finance unit.
Abbey needs to focus on strengthening the consumer banking business on which it was founded in 1849, analysts said. Its share of new mortgage lending fell to 7% in the first half, from 9.6% a year earlier.
