Getting back to the Abbey habit


Clive Horwood
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Santander's retail banking specialists' biggest challenge to date will be to turn around the fortunes of Abbey. Can the Spanish bank's model be successfully applied to the highly competitive UK market?

Botín: the man and his mission|The masters of retail banking  |Awards for excellence - Best bank

WHEN FRANCISCO GÓMEZ-ROLDAN arrived at Abbey as chief executive in November 2004, he knew exactly what he had to do. "Our first priorities are to provide the best service quality and be the most efficient bank in the UK. That is what makes you the number one in retail banking," he says.

It's a simple statement that masks the huge challenge facing Gómez-Roldan and his team. Santander executives say that Abbey National had been under-managed by its previous management team, led by Ian Harley, during the late 1990s and the early part of this decade. Attempts to diversify into areas such as wholesale banking through its Abbey National Treasury Services arm had harmed the banks' profits in their own right, but they also took away focus and profitability from Abbey's core business of retail banking.

Abbey had quickly fallen from being one of the UK's most profitable companies to a loss-making target for acquisition. The bank lost almost $3 billion in two years in 2002 and 2003, before returning to profit in 2004 after a radical restructuring. A bid from UK rival Lloyds TSB was blocked by UK regulators in 2001. A new management board, led by Luqman Arnold, rebuffed subsequent advances from foreign competitors such as Bank of Ireland and National Australia Bank. Lloyds had been prepared to pay £18 billion for Abbey. Santander picked it up three years later for just £8.5 billion.

The UK bank had become very inefficient. Its cost/income ratio of 62% compares unfavourably with those of all of its rivals, and seems positively spendthrift compared with the below 45% ratio of Halifax Bank of Scotland (HBOS). Santander group's cost income ratio, minus Abbey, is 47%. The stated aim is to reduce Abbey's cost base from £1.75 billion to £1.45 billion in three years. Some £150 million has been axed since the takeover in late November, half of it through 4,000 announced redundancies. Contracts with outsourcers and suppliers have been renegotiated.


The changes are being led by Gómez-Roldan, an engineer by training who has a wealth of experience in Spanish banking. During his career he has worked for all of the major banking groups in Spain, starting out at Banco Vizcaya before its merger with Banco Bilbao. He then moved to Argentaria, where he helped to oversee the privatization and became CEO in 1996. In 1999 BBV merged with Argentaria to become BBVA, at which point he moved to Banesto to become CEO. Two years later he became chief financial officer of the entire Santander group.

Inefficiencies are now being wiped out. When Gómez-Roldan arrived at Abbey's headquarters in London's Triton Square, he found 300 new projects being worked on, each with its own team and advisers. Now project teams are centralized within each business group.

Gómez-Roldan says Abbey still has two key assets – a great brand name in the UK and a high-quality customer base. But these relationships are under exploited. Abbey has about 13 million active customers. Of these, 7.5 million utilize only one of Abbey's products. The average number of products per customer is 1.65, compared with 2.07 at market leader Lloyds TSB.

Abbey is the second best of the big six UK retail banks at attracting customers, but is one of the worst at retaining them. Gómez-Roldan says this is partly a result of inefficiencies in customer services that the Parthenon technology platform should help to eradicate. But it is also because Abbey has treated its customer base as one homogenous group, rather than segment customers according to their different profiles.

For example, Gómez-Roldan is excited by Abbey's strengths in high-income sectors. By age, Abbey's biggest share of the market is from the 30 to 49 age group, and regionally its biggest market share is in the affluent southeast of the UK. Under its new owners, Abbey intends to continue to grow its share of these groups and to sell more of the bank's products to them. 

To that end, an extensive training programme will mean that 30% more of Abbey's staff are authorized to sell financial products. The average time spent advising on a mortgage is 2.5 hours; that will fall to 1.5 hours.


Hiring Graeme Hardie as a board-level sales and marketing director is crucial to the strategy. Hardie had previously worked at Royal Bank of Scotland for 26 years, including five as a managing director of its subsidiary NatWest. He had first met Inciarte in the late 1980s, at the outset of Santander's close relationship with RBS.

When Hardie was approached by Santander to take a job at Abbey, it was too good an opportunity to turn down. "I knew Santander's approach to business and it was very similar to RBS's – fast moving and quick at decision making. After speaking to [chairman] Emilio Botín and [director general] Juan Inciarte, I was convinced this was the most exciting job in UK retail banking."

Hardie believes the change of management is already paying dividends. "I feel like I have walked into a car showroom and I have got a beautiful new car with a great engine and new gearbox in the Parthenon platform and, of course, spray-painted a gleaming red."

Hardie says the attention to detail of Santander's board is crucial to the bank's success. "Senior management visit the branches because you can't know your customers without understanding the front end of the business. We're all about delivering to customers the experience they want."

This root-and-branch approach is part of the daily ethos of working for Santander. "When I arrived at Abbey there was a 'back to the floor' scheme, where once a year senior management would go and work in one of the branches," says Hardie. "Santander's attitude is that you shouldn't have a scheme, this should be part of your way of life. To really understand our mortgage business, a director needs to regularly sit in on meetings between our mortgage advisers and potential customers."

The meticulous approach boils down to everything from the branding to the window displays of branches. "Customers used to miss appointments because old Abbey branches were poorly presented, with no distinct branding. Customers want information about products in the windows and in the branch, and they want staff manning the counters and desks. You never see a successful supermarket with empty shelves," says Hardie,

The aim is to make everything as simple as possible for customers – that includes giving staff a Spanish lesson in plain English. "When we took Abbey over we had staff going by the title of personal home financial adviser," says Hardie. "They are now called mortgage advisers, because that is what they do and what the customer understands."

Abbey's key businesses are mortgages, where it has a 10.5% share of the market, and savings, where its share is 7%. But its share of both the unsecured personal loan and credit and debit card sectors is less than 2%, and it is trying to rebuild its consumer finance business through the Santander Consumer brand, which includes car and white-goods finance. It has also appointed a new head of insurance and asset management, an area in which it is keen to grow.

But Abbey's main focus seems to be on building its current account business, where its market share is just 5%. "A big part of UK bank's profitability is in current accounts, where they pay almost no interest on current account deposits," says Gómez-Roldan. "We are already offering 2.4%, compared with most of our major rivals who pay 0.1%. We see this as a huge opportunity, similar to the supercuenta in Spain in the late 1980s."

Supercuenta was Emilio Botín's masterstroke in Spain – a current account that paid double-digit interest when Santander's competitors paid just 1%. Whether something similar will be sufficient to tempt notoriously inert UK customers to shift their accounts to Abbey, especially with online deposit accounts from new players such as ING offering up to 5%, remains to be seen.

Abbey has suffered, as have all traditional UK lenders, from the advent of new mortgage and unsecured loan providers, notably in areas such as sub-prime. But Gómez-Roldan reckons most of the damage has already been done, and that there is not much scope left for further erosion of market share. "We are confident that, with the right products and the low cost base that our more efficient technology platform will provide, we can be the best price provider in UK mortgages and unsecured personal loans," he says.

Gómez-Roldan praises the most recent Abbey management team led by former CEO Luqman Arnold for sorting out the mess of Abbey National Treasury Services, which at one point had assets of almost £100 billion ($182 billion). The new treasury operation, Abbey Financial Markets, is set up to provide products to retail customers and has assets of just £3 billion, on which it generated pre-tax profits of £204 million in 2004.

Early signs are that the "Santander effect" is beginning to work. As chairman Emilio Botín says: "We told Abbey to get its costs down first, but the important thing was to first stabilize and then to grow income." 

Costs have certainly been cut, but increasing revenue could prove much harder. Abbey increased its share of new mortgage lending in the first quarter of 2005, but in a shrinking market – in nominal terms, its first-quarter 2005 gross mortgage lending was just £5 billion, compared with £6.7 billion in Q1 2004.  

Botín: the man and his mission

|The masters of retail banking  |Awards for excellence - Best bank