Harley replaced as Abbey chief

LONDON, England -- Abbey National has replaced Chief Executive Ian Harley, one month after he issued a profit warning that fueled speculation that Britain's second largest mortgage lender could become a takeover target.

The 52-year-old Harley, whose resignation took immediate effect on Friday, has been under pressure since telling investors in June that profits would fall short of expectations due to increasing loan and junk bond losses.

Abbey National (ANL) shares, which fell to near two-month lows after Harley's warning, were up 2.2 percent to 712.50 pence in mid-morning London trading on Friday following the announcement of his resignation.

Harley -- who will receive a year's salary estimated at £883,000 ($1.40 million) as part of a buyout package -- has been replaced by Chairman Terence Burns until a new chief executive is found.

"This is a transitional year for the group as we respond to the challenges of changing markets," Burns said in a statement. "Our priority now is to get the business back on track for growth and ensure we increase shareholder value."

Abbey National is expected to report a big drop in first-half profits next Wednesday. Loan losses are likely to amount to £256 million for the period, equal to the total amount for all of last year.

The bank has scaled back corporate lending and is reviewing its private equity investments. It recently restructured its wholesale or corporate banking division following an unsuccessful venture in junk bonds.

"I see [Harley's move] as a positive. Shareholders have been asking questions for quite some time," one analyst told Reuters. "Burns appears to have a very strong record so we have no problem with him holding the reins in the meantime."

Abbey National, which has been one of the poorest performing European banks, has seen its market value fall about 30 percent this year.

Analysts believe it is now vulnerable to a takeover, likely by a foreign financial group.

National Australia Bank, which currently operates on a limited basis in the UK, is seen a possible suitor for Abbey National, which last year avoided takeover by Lloyds TSB when the British government blocked the bid due to competition concerns.