Outlook: Where now for besieged mortgage bank, Abbey National?

British Energy; Grossart/SIT

Abbey National is selling the bulk of its First National consumer finance business for one reason and one reason only – it desperately needs the money. Results due later this month are expected to be truly horrendous, with provisions against the group's disastrous foray into wholesale banking and against its troubled life assurance arm expected to lift total losses to near the £2bn mark.

The statement will be a full frontal exposure of a type which is quite unusual for the banking sector, and will stand as a terrible warning to others of the dangers of ill thought through diversification. What becomes of the dividend is anyone's guess, but if it survives at all, it will be a pale shadow of its former self.

Luqman Arnold, the new man in the hot seat, will hope investors can look through the bad news, which was flagged in last November's trading update, to his emerging strategy for the future. Yesterday's announcement makes an encouraging start. He's achieved a good price for the First National assets, made all the more remarkable by the fact that this was essentially a fire sale. He also seems now largely to have contained the haemorrhage in wholesale banking and life assurance.

Even so, the real challenge is only just beginning. That challenge is the same as it has always been at Abbey National: how to make Abbey stand out from the crowd amid six retail and mortgage banking lookalikes. The only thing that distinguishes it right now is that it is the smallest of the six by some distance, and yet it is not so small that like Northern Rock it can thrive as a niche player.

In any business, it's bad enough even when as far down the pecking order as number three or four, but when number six the competitive squeeze can make survival well nigh impossible. The only reason Abbey has survived thus far is perhaps that retail banking is still more like a cartel than a fully competitive industry. Abbey finds itself quite literally between a Rock and a hard place. It is neither fish nor fowl.

It was that realisation which determined previous regimes on diversification. This was not the solution, as Abbey shareholders know to their cost, but it is not clear that returning to core competences is the answer either. Mr Luqman promises more on how he plans to turn Abbey into a unique selling proposition with the results, only not too much or better prepared rivals will do it before him.

It will be fascinating to hear what he has to say, for there's little doubt he's got one of the toughest jobs in British banking today. Nothing is impossible, however, and if Mr Luqman can find a way of behaving more like a retailer of goods, focused on giving the customer the best possible value for money, rather than a banker whose whole raison d'être this past 10 years seems to have been that of crunching the customer for as much profit as be extracted, then he may be in with a chance.

The business text books tell you that what's good for the customer is in the long run good for the investor too. That may not be the case in British retail banking, which is extraordinarily profitable compared with other countries. Mr Arnold needs to be careful his customer-friendly proposition doesn't also trounce his profits.

Halifax has not been well rewarded by the stock market for its hitherto half-hearted attempt to crack the current account cartel by competing on price. Lloyds TSB has responded with an initiative which is all marketing hype and no substance. Others haven't even bothered, because they know they can still rely on customer inertia to protect them. In any case, competing on price is not really an option for Mr Arnold. Simply repricing may not make the customer any happier, or generate new business.

Abbey has to succeed as a retail bank. It has nowhere else to go. But it is still hard to resist the view that it would be much more likely to succeed as part of a bigger, pan-European retail bank, or perhaps a Citigroup with the firepower and clout to bring Wal-Mart style pricing to these shores, than alone. Mr Arnold certainly has the pedigree to achieve the required turnaround, but in the end he may find it easier simply to prepare Abbey for sale.

British Energy

The man who dreamed up Goldfish for Centrica is going off to work in another bowl entirely. This one is called British Energy and once there his every move will be watched with cold-eyed intensity by those sharks known as banks and bondholders.

For Mike Alexander, the switch from selling gas to the nuclear power company that dares not speak its name is a no lose gamble. At Centrica, he was already banging up against a glass ceiling, knowing that when Sir Roy Gardner relinquishes the chief executive's job there is already a successor in waiting in the shape of his deputy, Mark Clare.

At British Energy, nobody will blame him if he fails to restore the country's nuclear fortunes and if by some miracle he succeeds, then he is assured of a gong and quite a bit of money to boot. The significance of his appointment now, of course, is that it signals the final go-ahead for the British Energy bail-out, financed by some £3bn of taxpayers money.

Meltdown at the company has reduced it to a miserably small core. The restructuring will leave virtually nothing in the kitty for shareholders and not much more for bondholders. But the bondholders always had a pretty weak hand and may well reflect that a small slice of not very much is better than 100 per cent of nothing.

As for Mr Alexander, the blurb tells us he is "hugely excited" at the prospect of driving the company forward through its next phase of development. If so, he must get switched on by the oddest of things since his job is more than likely to be running down British Energy's ageing fleet of reactors until the last light is turned off sometime in 2026 and Britain's hugely costly experiment with nuclear power finally comes to an end.

Grossart/SIT

I've only met Sir Angus Grossart once, and that was many years ago when he was advising Jimmy Gulliver on his ill-fated bid for Distillers. Then he was one of the most dynamic and entrepreneurial operators on the merchant banking scene and from his Edinburgh seat, he seemed to add a touch of dash and verve to all his many entanglements.

Maybe it's age, or perhaps the knighthood, but something has since plainly gone to his head. He's been behaving in the most ridiculous, pompous and self important way over the chairmanship of Scottish Investment Trust. Hermes, one of Britain's largest fund managers, has been lobbying to have him removed for months, but backed by his board, he's been resisting. Sir Angus has been chairman of the trust for 27 years, which is far to long for anyone, but what makes his position untenable is that his own firm Noble Grossart, is a long standing paid advisor to the trust and has also been actively involved in a number of private equity transactions with the trust.

The rest of the trust's board, led from the front by Sir Angus's old pal Sir George Matthewson, chairman of Royal Bank of Scotland Group, says that despite these conflicts of interests, Sir Angus is completely independent. They've even dispensed with the services of Noble Grossart to prove it. Sir Angus manifestly flies in the face of a number of corporate governance principles, but that's not in itself why Hermes has been pressing the issue. As is so often the case, poor corporate governance has been accompanied by abysmal performance, and when the two go together, it demands action.

Well, yesterday Sir Angus finally bowed to the inevitable and said he would go, but not before seeking re-election at the agm. The statement was classic face saving fudge. There's no news on the timing of his departure, or who might succeed him. SIT's board, largely a cabal of Edinburgh financiers, seems too puffed up with its own sense of self importance and self interest to know when to give up.

jeremy.warner@independent.co.uk