Who remembers the "Abbey habit"? The slogan which brought savers flocking to deposit money may still be there but, as with the Prudential's "man from the Pru", times and tastes have changed. Today Abbey National is a full-service bank with total assets of £124 billion ($202 billion). Last year Abbey reported pre-tax profits of £1.17 billion. In terms of assets it is the fifth-largest bank in the UK with a market capitalization of £13.2 billion.
It is also a leading domestic and international borrower. This year it will raise up to the equivalent of $15 billion in medium-term notes and bonds. With long-term credit ratings of AA by Standard and Poor's and AA2 from Moody's Investors Service, Abbey is a sought-after borrower by investment bankers and a favourite among investors, especially in the name-conscious retail sector.
How did Abbey National turn itself from a run-of-the-mill building society into one of the hottest Euromarket borrowers? Enter Gareth Jones, a former Redland Group group treasurer who joined Abbey in 1989. Under his leadership it has marketed itself aggressively, beyond its traditional UK customer savings base. Abbey had the financial credentials. The missing factor was recognition. Through excellent marketing and promotion and some highly visible borrowing across a wide range of currencies, Jones and his staff ensured more retail and institutional customers became aware of the new Abbey habit - snapping up the bank's paper and bonds in the international markets.
Jones does not miss a funding opportunity. In mid-May, Abbey National completed a £125 million perpetual preference shares offering with Goldman Sachs as lead-manager. The issue was highly successful. Jones was pleased but acknowledged the help of sterling's strength after the UK general election.
In other currencies, too, Abbey is prepared to listen to any funding proposals, but prefers to avoid the exotics. As one of the most highly regarded and idea-receptive frequent borrowers, it isn't short of callers and visiting bankers carrying flowers. To date Jones has rejected borrowing in Czech koruna - "there's a limited domestic customer distribution base" - but he was pleased with a Greek drachma issue and delighted with Abbey National's reception in Italy.
Might Abbey be considering a parallel Euro loan? Jones wouldn't be drawn, but the concept has been examined. Jones does not have a precise sub-Libor funding target but all proceeds are converted back into Libor-based US dollars or sterling.
As an important frequent borrower Abbey must surely have had the occasional flop? Jones recalls, with a touch of black humour, the notorious (at the time) $1 billion floating-rate-note issue launched in the first week of February 1994. What could be wrong with a jumbo floater in the capable lead-management hands of Goldman Sachs International? Not a great deal except this was the week when Federal Reserve Board chairman Alan Greenspan raised interest rates and the international bond markets went into a tail-spin. The sub-Libor deal was, according to Jones, "already a little punchy" and, when the market tanked, Goldman was left holding the bag.
In another issue in early 1994 Abbey was marketing a smaller (£100 million) fixed-rate sterling issue with SG Warburg as lead manager. The timing was not propitious but, late one Friday, the deal looked set, with Chase Manhattan agreeing to be the swap counterparty. By Monday the situation had turned ugly. Chase would agree to be the swap counterparty only if it could be lead manager to the issue. SG Warburg refused. At the time, this seemed reasonable as Chase was no more prominent a lead-manager than today. Chase dropped out of the swap in a huff.
As Abbey National scurried around to replace the swap, eventually using not one but four counterparties, the UK gilt market crashed three percentage points. Abbey was left with egg on its face. SG Warburg was left with most of the issue. None of the large Euromarket houses wanted to participate and Jones recalls an underwriting group "full of little-known Japanese names". How did Warburg fare? "We did help them by buying back some paper," admits Jones.
How does Abbey National select its lead-managers? Jones and his team appear to favour a horses for courses approach. Globals and jumbos are better handled by the US bulge bracket and the top European commercial banks, but for retail issues in, say, lira or Swiss francs, Abbey prefers an all-domestic underwriting syndicate.
Again, Jones draws attention to the bank's concern for investors and the subsequent price performance of the bonds in the secondary market. In every Abbey issue his group monitors placement and credit is given to houses which can prove they have tapped new investor sources. "If you are a corporate borrower you can afford the occasional poorly received issue, but when you are a bank you have to be seen as totally professional by the market-place," he says.
Is it possible to detect a favouritism towards Merrill Lynch and Goldman Sachs among the bank's lead-managers? "Not so," says Jones, but he is quick to acknowledge the specialist skills of the US investment banks, such as Merrill's expertise in the bank capital sector. He says Merrill's Euromarket success is probably attributable to the fact that "the company runs its operations like an industrial business".
Jones, a patriotic Welshman, loves rugby, but his real passion outside work is steam engines. He owns one steam lorry and is looking for another. He is also searching for a steam car where the limited available supply is now mainly in the US. Does he have any particular office quirks? Friends say he is fanatical about punctuality. At one signing ceremony Abbey presented the lead-managers with large Mickey Mouse alarm clocks. Jones' message was not lost on the recipients.