Harley pays the price at Abbey

Patrick Hosking12 April 2012

ABBEY National has dumped its beleaguered chief executive Ian Harley, sending him on his way with a pay-off expected to top £1m.

'Ian Harley is stepping down with immediate effect,' the bank said. 'The process of appointing a new chief executive will begin immediately.'

Chairman Lord Burns, who temporarily becomes executive chairman, thanked Harley for his 'tremendous contribution' but referred to a period of 'unprecedented difficulties' for the bank.

Harley lost the confidence of the City after a shock profits warning last month sent the share price reeling. Abbey wrote off £450m on an ill-judged foray into US junk bonds just weeks after insisting there were 'no black holes' in its accounts. That shock followed the admission last November that the bank had dropped £95m in collapsed energy company Enron. For some shareholders the first doubts about Harley crept in two years ago when he rejected takeover overtures from Lloyds TSB.

Abbey shares rose 17 1/2p to 714 1/2p traders speculated that the departure might shorten the odds on a move for Abbey. National Australia Bank, which owns Yorkshire Bank and Clydesdale Bank in Britain, has been mooted as a possible bidder. Sarah Horder of broker Teather & Greenwood said the news was positive for Abbey. 'Harley was seen as someone blocking merger opportunities.'

Abbey said it would shortly appoint headhunters to find a successor. An external appointment is thought most likely because most of the internal candidates are tainted by Abbey's recent problems. The exception is finance director Stephen Hester, the former CSFB investment banker who arrived two months ago.

Two well-regarded external candidates would be Gordon Pell, the former Lloyds banker now running the wealth management side at Royal Bank of Scotland, and John Stewart, the former Woolwich chief now working under Matt Barrett at Barclays. Adam Applegarth, the Northern Rock chief who has successfully steered that mortgage bank into the FTSE 100, might also get onto the short list, though he is only 39 and Abbey is a much more complex bank.

Harley, paid a base salary of £884,000 last year and on a one-year contract, is expected to receive compensation for loss of office well into seven figures after pension benefits and bonuses are taken into account.

Burns said Abbey's financial performance had not deteriorated since the June warning.

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