Britain's Abbey National Plans a Leap into Insurance

LONDON - While U.S. banks consider how to use insurance powers that might flow from pending legislation, one of Britain's biggest consumer banks is moving full-steam into the area.

"We are quite a long way along in our plans," said Peter Birch, chief executive officer of Abbey National PLC. "With seven million depositors, it is a marvelous opportunity to sell a range of our insurance and pension products."

Mr. Birch was speaking in an interview shortly after announcing the bank's half-year results, which showed a rise in pretax profit to $524 million, from $476 million.

Abbey National is the only U.K. bank expected to show higher profits for the first half. Its 11.1% rise in dividend payout, to about 5.75 cents per share, was also forecast to be the sector's biggest.

The group has a marketing relationship with the insurance company Friends Provident. That link expires at the end of next year, at which time Abbey National will embark on an independent insurance venture.

Mr. Birch said there was no question of moving up that expiration date, but he added, "One of the options would be a joint venture with Friends Provident."

He also said that in the case of an acquisition, a guideline would be to seek out "a company we can afford without betting the bank."

Insurance business at the bank generates about $136 million of profit annually, and analyst Alison Deuchars at Smith New Court Securities said the insurance potential is "substantial."

Largely Problem-Free

Abbey National, which converted from a building society to a bank in 1989, still derives the overwhelming bulk of its profits from the mortgage business.

Hence it is almost totally free of the problems - namely, huge provisions for loans to the Third World and bad debts to U.K. corporations - that have been dragging down profits at the other banks.

Mr. Birch said the bank's mortgage market share had declined to 12.2% at the half year, from 17.8%, which reflected a deliberate policy announced last year to moderate lending into this depressed and increasingly risky sector.

On the other hand, the group's retail deposit side, helped along by high interest rates, grew to $3.7 billion, or 11.9% of the market, from $2.5 billion, or 7.1%, a year ago.

Mr. Birch said that in addition to high interest rates and worries about unemployment, another major factor depressing the mortgage market is concern over the next general election, which forecasters believe will be called next spring.

"There is little opportunity for recovery until the political uncertainty is removed," he said. "At the upper end of the market, high-rate tax payers are concerned about a possible Labor Party victory and higher taxes." [Tabular Data Omitted]

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