£8.5bn Abbey takeover to target IT cost savings

IT will be key to short-term cost savings in the £8.5bn takeover of Abbey by Spanish bank Santander Central Hispano but it is unlikely to result in large numbers of job cuts in the UK, according to industry analysts.

Abbey has this week agreed to the takeover and will put it out to its investors to vote on the proposed deal, which SCH claims could yield savings of around €500m a year.

Abbey spent €650m on technology in 2003 and is currently in the middle of a programme to cut costs by £200m but has an ageing legacy IT platform that is increasingly costly to maintain.

William Conner, senior analyst in the financial services team at Datamonitor, told silicon.com that while IT integration will lead to some cost savings they are not significant enough to be the main driver for the takeover.

"It is clearly the case that system integration is going to be a considerable reason but it is not the only reason – that in itself is not enough to make it viable," he said. "One assumes Santander is looking at it as a long-term entry point into the UK retail banking market."

Conner said that while Santander will integrate the main IT infrastructure, the fact it has no current operations in the UK and the language difference mean although there will be some job losses there is unlikely to be a massive cull.

"It won't be as catastrophic as the impression from the papers," he said. "Clearly some of the very easy to automate back-office functions that are still done manually are going to be integrated and that will result in some job losses. Santander has a federal IT model – it is not fully centralised - and they will view Abbey as a business unit with its own product design and manufacture."

Conner speculated that a UK BPO deal looks the most likely way that SCH will integrate Abbey's IT infrastructure.

Abbey also revealed it made a pre-tax profit of £350m during the first half of the year compared with a £144m loss a year ago.