View from City Road: Abbey readjusts to reality

Apart from Abbey National's disaster in France, its performance last year was hard to fault. It is not surprising the share price rose nearly a quarter in the last three months. But the problem, as with HSBC on Monday, is what will be the next trick?

Life assurance is growing fast, the market share in personal financial services is rising, the treasury operation steered clear of pitfalls, and bad debt provisions were sharply down. Abbey also had a better than average record on repossessions and there is no reason to worry that its aggressive mortgage marketing last year was storing up trouble.

Because it is well focused, fast on its feet and liked by customers, Abbey is in a position to raise market share in several key areas at a time when the biggest clearing banks are suffering the tail-end of the worst publicity they have ever had.

But after years of specious claims about improvements, competition among the banks is genuinely beginning to concentrate on offering better service to retail customers. This is expensive to provide, and so far seems to have lowered fees and margins rather than improved them, as NatWest and Midland are finding.

Falling bad debts may offset any weakening in treasury profits in this year's more difficult markets, but it is hard to be confident about sustained growth in margins. Abbey shares, down 11p to 489p, are readjusting to reality.