The Lowdown; Likeable Luqman puts the personal back into finance

Heather Tomlinson

Luqman Arnold is a chatty fellow, and it is surprisingly easy to swap banking horror stories with him. Five months ago, before he took the helm at Abbey National, the bank's chief executive had a spot of bother with his current account (not, it has to be said, from Abbey itself).

Not only had some bonds he purchased mysteriously "disappeared"; all his direct debits had been cancelled for no reason. Arnold, who had quit the Swiss banking giant UBS and was on "gardening leave", didn't get a word of apology from the bank, which he declines to name.

He points out that it is because such behaviour is all too frequent that Abbey's new strategy, revealed last week, will be a winner. The bank needs a new plan like flowers need water, having last week reported an astonishingly large financial loss of pounds 984m.

Arnold wants to get staff who work in Abbey's branches and call centres fully versed in personal finance, and ready to advise their customers on products from Abbey and other institutions. To help them provide a better service, they will have access to more comprehensive information on each client. Within six months, Arnold believes, Abbey customers will start noticing the difference.

"The big banks look the same to the customer," he says. "They don't like the service and they don't like the banks, either. Consumers like Abbey National more than the clearing banks, but that is a lukewarm endorsement and not one we are happy with."

Rather than resorting to "generic sales patter", he wants the customer to be met with a friendly and knowledgeable face, or at the least a friendly and knowledgeable disembodied voice on the end of the phone. "There is a great opportunity for a bank that is different to fill that gap. At the end of one of the big bull markets of history, people are desperate to understand their own position better and receive advice to help them decide what to do before they buy."

A former building society that demutualised in 1989, Abbey is best known for its UK personal finance business, offering individual and small business accounts, mortgages and the like. Last week it reported that profits were flat in this division, which must have rankled when its competitors Royal Bank of Scotland and HBOS (the merged Halifax and the Bank of Scotland) have both revealed soaring profits.

But, overall, Abbey had an even sorrier tale to tell. Its less well-known business of lending to international corporates and making other risky investments has backfired spectacularly and forced it to report that pounds 984m loss for last year. Abbey's vast number of private shareholders, a legacy from the demutualisation, will see their yearly dividend payout halved to 25p per share.

Thankfully for Arnold, he is not tainted by this disaster. He is a new pair of hands, a softly spoken man with a pleasant manner and a wry sense of humour.

Neither can Abbey's chairman, Lord Burns, a former senior civil servant at the Treasury, shoulder much of the blame: he started his job at the end of 2001, when many of the really bad decisions had already been made. And finance director Stephen Hester, an old comrade of Arnold's, joined the bank early last year.

Having been forced to pay off the former directors to the tune of around pounds 7m, the new team wants to wipe the slate clean. They will either wind down or sell off the remnants of Abbey's dalliance with risky investments and stick to the knitting: UK personal finance services.

Although progress on the new strategy and restructuring has been impressive, the share price has remained flat and City analysts are still sceptical.

"I don't find the strategy convincing," says Jonathan Gollins, banking analyst at Banc of America. "It is based on the assumption that banks don't provide a good service. But even though the consumer gives nine out of 10 reasons other than price [for selecting a product], when it comes down to it they select on price first." And he asks: "Do customers want their bank to start annoying them to buy other products? I don't think so."

Arnold insists there will be no hard sell or cold calling, just a subtle shift, with better trained staff and more in-depth analysis of the needs of customers. He expects customers to start seeing changes in around six months, with the whole strategy completed in three years.

And he is not surprised that analysts lack enthusiasm. He points out that when HBOS revealed its strategy two years ago, it met a similarly lukewarm reception, but that last week's 22 per cent profits rise has proved the doubters wrong. Analysts are also concerned that Arnold is more of an investment banker than a mortgages and overdrafts man, although they undoubtedly have a lot of respect for him.

Born in Calcutta, the son of an English father and an Indian mother, he was educated in the UK and has had a glittering career - though almost entirely outside British banking and certainly not in mortgage lending, Abbey's bread and butter. Arnold's last job was as the number two at UBS; he has also worked at Credit Suisse First Boston, and for Manufacturers Hanover (now part of JP Morgan) and First National Bank in Dallas.

His right-hand man, Mr Hester, also has a background in investment banking, mostly at CSFB. But in this case, such experience seems appropriate, as the finance director is now in charge of sorting out the mess in corporate banking.

Arnold says he is "very comfortable" with the range of experience on the board, and points out that he himself has a track record as a strategic leader, and also worked in the retail banking operations of UBS in Switzerland, and at PaineWebber in the US, which was bought by UBS.

But the pessimists point out that the UK economy appears to be at the end of a long and dramatic boom. Over the past couple of difficult years, what has kept it going has been a high amount of consumer spending, funded by debt, and soaring house prices. These things are also good for the banks. But now they appear to have been reached their peak, the situation could get tougher. "We have some big problems cooking away in this country," Arnold admits.

Yet he remains certain that Abbey can still prosper: "There is tremendous room for us to grow. The profits and revenues we generate do not reflect the size of the bank and strength of the brand. We can do much better."

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