Luqman’s no saviour

November 14th, 2007

Luqman Arnold, picture courtesy of The Evening Standard / This is London

I am surprised that so many financial commentators seem to believe that former Abbey boss Luqman Arnold has what it takes to mend the broken Northern Crock. It is also surprising that the sticken bank’s shares rallied by 6.8% after the Sunday Times last weekend revealed that Arnold has “secretly assembled a crack team to rescue Northern Rock”.

There appears to be a widespread assumption among banking analysts and City scribes that Luqman Arnold is some sort of financial genius who is more likely to be able to “rescue” Northern Rock than, for example, those who aspire to take it over.

Yet the reality of Arnold’s track record at Abbey National – where he was installed as chief executive in October 2002 and which he left in November 2004 – merits some examination.

Abbey's share price graph

He and his side-kick Stephen Hester, a former investment banker who is now chief executive of British Land, did more harm to Abbey National ‘s share price than even the Ian Harley-led team that preceded them (see chart above).

Okay, Arnold and the gardening fanatic Hester restructured the business well and managed to offload Abbey’s underperfoming wholesale businesses, however this hardly required much genius. What seems to have been forgotten is that the duo became a total laughing stock after their attempts “turn banking on its head” with a rebrand of Abbey turned out to be little short of disastrous.

In this hugely expensive makeover, unveiled with some fanfare in September 2003 , Abbey’s branches were refurbished in pastel shades and ended up looking more like quaint dress shops than bank branches.

Instead of turning banking on its head”, the rebrand accelerated the slide in Abbey’s profitability and market share. In 2004, pre-tax profits in the bank’s core retail business plunged by 20% to £814m. The bank’s share of UK mortgage slumped from 9.9% in 2003 to 3.1% in 2004 and its overall share of the UK mortgage market slid from 10.7% to 8.6%.

One senior financial source recently told me: “Under Ian Harley Abbey National’s share price fell from £13 to £10 (23%). Under Hester and Arnold, it fell from £10 to around £6 (40%).”

In the end, Emilio Botin knew a damaged franchise when he saw it, and the takeover premium Banco Santander paid for Abbey was dissappointingly low, with the former building society being taken out for just 650p. The source added: “In my opinion, they made more of a mess of things than Ian Harley.”

Needless to say the bank’s dress shop image, for which design agency Wolff Olins received a reported £500,000 and which cost a reported £26m to implement and promoste, was scrapped soon after Botin’s lot took charge.

To me it is astonishing that any financially astute business person should want anything to do Northern Rock. The bank already has the stench of death about it. However it will be interesting to see how Olivant Advisers – the name of Arnold’s new grouping – fares in the unseemly battle to pick over the lenders’ putrefying carcass.

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Posted by on Nov 14 2007. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

1 Comment for “Luqman’s no saviour”

  1. That is an excellent and incisive post. Luqman Arnold was a disaster at Abbey and he would be a disaster at Northern Rock.

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