Treasury Today Country Profiles in association with Citi
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March 2004

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No smoke without fire

The contrast between the results of the leading banking groups in the UK and those of the unfortunate Abbey Group is too dramatic to go without comment. At a time when the major banking groups are squeezing extra margin out of their businesses and recording record results, the Abbey Group is still sorting out the financial mess caused by too many clever transactions originated by its wholesale business, Abbey National Treasury Services (ANTS).

What a contrast this makes to a few years ago when ANTS was always leading the pack with its ‘clever’ financing structures and ‘tax efficient’ investments. So ‘clever’, in fact, that the revenue stream from the wholesale side of the business began to dwarf the revenues from the core mortgage business. The head of the treasury became a board member and was tipped as a future chief executive.

This shows you cannot defy gravity. You can’t make super profits without taking a risk. Slowly the deals began to show some losses. These gathered momentum and the brains behind the deals left the organisation. Even now, two years on, Abbey is still writing off various losses from leasing and other transactions that looked so good at the time they were booked.

This is a salutary reminder to any treasurer or CFO who is tempted by the clever deal being offered by an investment bank. Use tax efficient structures by all means, but remember that there is no extra return without additional risk.

After all, if there was, the bank would not offer it to you, would they?