General Insurance
The range of non-life insurance products sold by Abbey includes property (buildings and contents), motor, payment protection, and travel insurance. Residential home insurance remains the primary type of policy sold and is offered to customers through the branch network and over the telephone, often at the same time that a mortgage is being taken out.
     The business model currently uses a panel of competing insurers, including ongoing relationships with Aviva plc, a leading UK insurer, to offer a wider choice of products and more competitive retail pricing. In addition, Capita Eastgate and Cap Gemini are responsible for the management and development of new systems to support the general insurance business, using the Consumer Direct platform, whilst the servicing of policies was outsourced to Capita Eastgate and some claims administration to Aviva plc. The process of fully implementing these arrangements and new systems is ongoing.

Treasury Services
Treasury Services is now structured into the following three business areas:

Asset and Liability Management
Asset and Liability Management supports Abbey’s liquidity and capital management activities and carries out medium and long-term funding, including Abbey’s securitisation programme. It manages Abbey’s product and structural exposure to interest rates and, in that role, is a link between the retail and wholesale banking areas. Asset and Liability Management helps set and implement Board, Asset and Liability Committee and Risk Committee policies for all aspects of balance sheet management – formulating guidance for, and monitoring, the overall balance sheet shape, including maturity profile. In carrying out its financing role, it maintains many relationships in the financial world which are utilised by other parts of the organisation, including the Personal Financial Services businesses and the two customer-facing Treasury Services businesses.

Financial Products
Financial Products covers equity, fixed income and credit derivative activities including the manufacture of structured products sold to retail customers by Abbey and other financial services organisations.

Short Term Markets
Short Term Markets runs Abbey’s short-term funding and liquidity management activities and the securities lending/borrowing and repo businesses. Short Term Markets focuses on managing Abbey’s liquidity, within the overall balance sheet management framework set by Asset and Liability Management, which also creates trading opportunities. Additionally, Short Term Markets operates in several international non-cash markets, in particular the stock borrowing and lending repo markets. It has retained a US office, to facilitate Abbey’s multi-currency fund raising.
     These businesses have been reviewed and are an integral part of the overall Abbey business plan.

Financing
Treasury continued to raise funding during the year, across the maturity spectrum and in a diverse range of currencies and instruments, but raised no new capital in 2003. The performance throughout the year illustrated Abbey’s capacity to attract investors at funding levels favourable to the organisation.
Major debt issuance programs managed by Treasury⁽¹⁾:

Abbey first registered with the Securities and Exchange Commission in October 1994. Abbey National plc, Treasury Services plc and Abbey National First Capital B.V. have registered various shelf facilities with the Securities and Exchange Commission, the most recent being in February 2001, permitting preference shares and debt securities, including medium term notes and other subordinated securities, to be issued from the date of registration in an aggregate principal amount of approximately $7bn.
     Under the shelf facility registered with the SEC, Abbey National Treasury Services plc may issue senior debt securities, and Abbey and Abbey National First Capital B.V. may issue subordinated debt securities. Abbey acts as guarantor on a senior basis of the debt securities issued by Abbey National Treasury Services, and as guarantor on a subordinated basis of the debt securities issued by Abbey National First Capital B.V. Various other entities within the Abbey group of companies may issue other subordinated securities under the shelf facility.
     At 31 December 2003, the aggregate amount of outstanding claims of creditors senior to the holders of subordinated debt of the following entities (and, in the case of Abbey, senior to the holders of subordinated debt guaranteed by Abbey) was as follows:

At 31 December 2003, the aggregate amount of outstanding claims of creditors of the following entities that will rank pari passu with the subordinated debt issued by those entities (and, in the case of Abbey, with the subordinated debt guaranteed by Abbey) was as follows:

Treasury Services assisted Abbey in raising further capital market funding, through a new issue under Abbey’s Holmes Financing Master Trust, bringing the total issuance under the programme to £20.6bn, (of which £14.5bn is outstanding). The terms and conditions of the underlying mortgages remain unaffected by the securitisation process.
     See also “Liquidity sources”.

Group Infrastructure
Group Infrastructure comprises Central Services, Financial Holdings (which contains the earnings on the difference between Abbey’s statutory capital and the target regulatory capital allocated to segments), and the results of certain small non-core businesses.

Portfolio Business Unit Businesses that are not consistent with the new strategy are managed within the Portfolio Business Unit. The intention is to reduce or exit these businesses whilst focusing on getting optimum value from these businesses to ensure that returns for shareholders are maximised and at the same time risk is reduced in a timely manner.      The following businesses are currently included within the Portfolio Business Unit. Parts of the Wholesale Bank including:
	the debt securities;
	the corporate loan portfolio, private equity and leasing portfolio;
	French and Italian operations;
	First National Motor Finance and Litigation Funding;
	Selected parts of Abbey Business, such as Cashflow Finance, Block Discounting and State Securities;
	International Life Business, such as Scottish Mutual International and Scottish Provident International Limited.

The results discussed below are not necessarily indicative of Abbey’s results in future periods. The following information contains certain forward-looking statements. For a discussion of certain cautionary statements relating to forward-looking statements, see “Forward-looking statements” on page 7.
     The following discussion is based on and should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report and Accounts. For a discussion of the accounting policies used in the preparation of the Consolidated Financial Statements, see “Accounting policies” in the Consolidated Financial Statements. The Consolidated Financial Statements are prepared in accordance with UK GAAP, which varies in certain significant respects from US GAAP. A discussion of such differences can be found in the “Other material items” section of the Operating and Financial Review and a reconciliation of certain UK GAAP amounts to US GAAP is included in Note 61 to the Consolidated Financial Statements.

Executive summary We have prepared this Operating and Financial Review in a manner consistent with the way management views Abbey’s business as a whole. As a result we present the following key sections to the Operating and Financial Review:
	Operating review summary – this contains an explanation of the basis of our results and any potential changes to that basis in the future, a summary consolidated statutory profit and loss with commentary, a summary consolidated statutory profit and loss analysed between Personal Financial Services and the Portfolio Business Unit, and a summary of the nature of adjustments between our statutory basis of accounting (UK GAAP) and our management basis of accounting (known as the “trading” basis);
	Personal Financial Services – this contains a summary of the results, and commentary thereon, by profit and loss line item on a trading basis for each segment. Additional detailed information is provided for certain segments such as the Banking and Savings and Investment and Protection segments due to the significance of their impact on Abbey’s results;
	Portfolio Business Unit – this contains a summary of the results and commentary thereon on a management basis for each segment. Additional detailed information is provided on the assets (and relevant provisions) of the Portfolio Business Unit due to these businesses being managed for exit;
	Other material items – this contains detailed information about the statutory to trading basis adjustments. It also contains details of the differences between UK GAAP and US GAAP and the movements therein;
	Balance sheet review – this contains an analysis of Abbey’s balance sheet as a whole, including:
		Capital disclosures – this contains an analysis of Abbey’s capital needs and availability;
		Off-Balance Sheet disclosures – this contains a summary of our off-balance sheet arrangements, their business purpose, and importance to Abbey; and
		Liquidity disclosures – this contains an analysis of Abbey’s sources and uses of liquidity and recent cashflows.
Basis of results presentation
In 2003, certain organisational changes were made that resulted in a change in our segmentation.
	Our segments in 2002 were:
	Retail Banking;
	Wealth Management and Long-Term Savings;
	Wholesale Banking; and
	Group Infrastructure.
As a result of the changes made in 2003 the majority of the Retail Banking business, including Abbey Retail, moved to the Banking and Savings segment, while a portion went to the Investment and

Protection segment, and the General Insurance business was segregated into its own segment.      The majority of the Wealth Management and Long-Term Savings business was transferred to the Investment and Protection segment, with the exception of the First National businesses which were moved into their own segment (along with their goodwill impairments charge which was previously recorded in the Group Infrastructure segment). The international life assurance operations and European operations of the Wealth Management and Long-Term Savings segment were transferred to the Other segment.       The Wholesale Banking segment remained largely unchanged, with the exception of the Treasury Services operations which were transferred into their own segment.      The Group Infrastructure segment remained unchanged except as noted above.      Results for the prior periods have been adjusted to reflect these changes to conform with the new segment structure, which is as follows:
	Banking and Savings;
	Investment and Protection;
	Treasury Services;
	General Insurance;
	Group Infrastructure;
	Wholesale Banking;
	First National; and
	Other.
Following the significant strategic change announced at the 2002 full year results presentation, this report reflects the split of Abbey between the ongoing Personal Financial Services businesses, and those being managed for exit in the Portfolio Business Unit.      The Banking and Savings, Investment and Protection, General Insurance, Treasury Services and Group Infrastructure segments represent our Personal Financial Services businesses. The Wholesale Banking, First National and Other segments represent our Portfolio Business Unit.

Critical factors affecting results
Business risks
Refer to the “Risk Factors” sections for details of the risks associated with our business.

Critical accounting policies and areas of significant
management judgement
The preparation of Abbey’s financial statements requires management to make estimates and judgements that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of income and expenses during the reporting period. Management evaluates its estimates and judgements on an ongoing basis.
     Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
     Full details of Abbey’s key accounting policies are set out within the Accounting policies section of the financial statements. The following estimates and judgements are considered important to the portrayal of Abbey’s financial condition.

(a) Provisions for bad and doubtful debts
Abbey estimates provisions for bad and doubtful debts with the objective of maintaining reserve levels believed by management to be sufficient to absorb current estimated probable losses in connection with loans and advances to banks and loans and advances to customers. The calculation of specific provisions on impaired loans and advances is based on the likelihood of the asset being written off (or repossessed in the case of mortgage loans) and the estimated loss on such a write off. These assessments are made using statistical

techniques based on historic experience. General provisions are determined based on historic experience, general credit and lending quality, and current or near-future economic prospects. These determinations are supplemented by various formulaic calculations and the application of management judgement. For further discussion of the impairment charges recorded in 2003 with respect to Provisions for Bad and Doubtful Debts, see the Provisions for Bad and Doubtful Debts sub-section in the Accounting policies section of the financial statements.
     We consider accounting estimates related to provisions for bad and doubtful debts “critical accounting estimates” because: (i) they are highly susceptible to change from period to period as the assumptions about future default rates and valuation of potential losses relating to impaired loans and advances are based on recent performance experience, and (ii) any significant difference between our estimated losses (as reflected in the specific and general provisions) and actual losses will require us to take provisions which, if significantly different, could have a material impact on our future profit and loss account and our balance sheet. Our assumptions about estimated losses are based on past performance, past customer behaviour, the credit quality of recent underwritten business and general economic conditions, which are not necessarily an indication of future losses.
     Provisions for Bad and Doubtful Debts, less amounts released and recoveries of amounts written off in previous years, are charged to the line item “Provisions for Bad and Doubtful Debts” in the Profit and Loss Account. The specific and general provisions are deducted from the “Loans and advances to banks” and the “Loans and advances to customers” line items on our balance sheet. If we believe that additions to the allowance for such credit losses are required, then we record additional provisions for credit losses, which would be treated as a charge in the line item “Provisions for Bad and Doubtful Debts” in the Profit and Loss Account. Credit exposures that we deem to be uncollectible and credit losses, net of recoveries of previously written off amounts, are first allocated against the cumulative Provisions for Bad and Doubtful Debts, with any difference charged or credited to the line item “Provisions for Bad and Doubtful Debts” within the Profit and Loss Account. For US GAAP reporting purposes, allowances for lending losses related to loans within the scope of SFAS 114 “Accounting by Creditors for Impairment of a Loan,” are determined based on the present value of expected future cash flows discounted at the loan’s effective rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent.
     We could have chosen, in the current period, estimates that would have had a materially different impact on our financial presentation. For example, our financial statements for the year ended 31 December 2003 include a provision charge for bad and doubtful debts in our Banking and Savings segment for an amount equal to £130m. This provision was reduced for the third consecutive year (in 2002 it was £151m), reflecting both favourable economic conditions through 2003 resulting in lower defaults and write offs, and improvements to the overall quality of the lending portfolio as a result of effective risk management and debt management operations.
     In calculating the general provisions within the Banking and Savings segment, a range of outcomes was calculated based principally on management’s conclusions regarding the current economic outlook. Had management used different assumptions regarding the current economic outlook, a larger or smaller provision for bad and doubtful debts would have resulted in the Banking and Savings segment that could have had a material impact on Abbey’s reported operating loss in 2003. Specifically, if management’s conclusions as to the current economic outlook were different, but within the range of what management deemed to be reasonably possible economic outlooks, the provision charge for bad and doubtful debts in the Banking and Savings segment could have decreased in 2003 from an actual provision charge of £130m (2002: £139m) by as much as £141m (2002: £126m), with a potential

corresponding decrease in Abbey’s operating loss in 2003 of up to 19% (2002: 12%), or increased by £20m (2002: £2m), with a potential corresponding increase in Abbey’s operating loss in 2003 of up to 3% (2002: nil). The actual provision charge of £130m (2002: £139m) in 2003, which was at the high end of the provision range, was based on what management estimated to be the most probable economic outlook within the range of reasonably possible economic outlooks.

(b) Investment securities
Debt securities, equity shares and similar interests held for investment purposes are stated at cost, adjusted for amortisation of premium or discount on an appropriate basis. Provision is made for any impairment. Abbey conducts regular impairment reviews of the investment portfolio and considers indicators, such as serious downgrades in credit ratings, breach of covenants or failure to make interest payments, that may suggest that interest and principal may not be paid in full.
     We consider that the accounting estimate related to impairment of our investment securities is a “critical accounting estimate” because: (i) it is highly susceptible to change from period to period because it requires us to make assumptions about the likelihood of the recoverability of the investments’ carrying values based on the length of time the investments’ fair value have been below their carrying amount, the severity of the decline in value, and our ability and intent to hold the securities until their cost is recovered, and (ii) the impact that recognising an impairment would have on the assets reported on our balance sheet as well as our net profit/(loss) could be material.
     Impairments of investment securities are charged to the line item “Amounts written off fixed asset investments” in the Profit and Loss Account. Impairment charges are deducted from the “Debt securities” and “Equity shares and other similar interests” line items in our balance sheet.
      We could have chosen, in the current period, estimates that would have had a materially different impact on our financial presentation. For example, our financial statements for the year ended 31 December 2003 included a charge for impairment of investment securities in our Wholesale Banking division (part of our Portfolio Business Unit) for an amount equal to £45m (2002: £390m). This provision reflected the length of time the investments’ fair value have been below their carrying amount, and the change in 2003 in our intent regarding our investment securities portfolios. If management had continued to intend to hold the securities until their cost was recovered, the impairment charge could have decreased significantly.

(c) Trading securities and derivatives
Securities which are not held for the purpose of investment, and the associated funding and derivatives classified as trading, are stated at fair value. The fair value of such financial instruments is the estimated amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. If a quoted market price is available for an instrument, the fair value is calculated based on the market price.
     Where quoted market prices are not available, as is the case with certain over-the-counter derivatives, fair value is determined using pricing models which use a mathematical methodology based on accepted financial theories. Depending on the product type and its components, the fair value of over-the-counter derivatives is modelled using one or a combination of pricing models that are widely accepted in the financial services industry.
     Pricing models take into account the contract terms of the securities as well as market-based valuation parameters, such as interest rates, volatility, exchange rates and the credit rating of the counterparty. Valuation adjustments are an integral component of the fair value estimation process and are taken on individual positions where either the absolute size of the trade or other specific features

of the trade or the particular market (such as counterparty credit risk, concentration or market liquidity) require more than the simple application of pricing models.
      When valuation parameters are not observable in the market or cannot be derived from observable market prices, as is the case with certain over-the-counter derivatives, the fair value is derived either through historical analysis of other observable market data (such as spot prices) or through an estimation of a valuation adjustment appropriate for each product. Typically, historical benchmarks are combined with management judgement in this process.
      We consider that the accounting estimate related to valuation of trading securities and derivatives where quoted market prices are not available is a “critical accounting estimate” because: (i) it is highly susceptible to change from period to period because it requires management to make assumptions about interest rates, volatility, exchange rates, the credit rating of the counterparty, valuation adjustments and specific features of the transactions and (ii) the impact that recognising a change in the valuations would have on the assets reported on our balance sheet as well as our net profit/ (loss) could be material.
      Changes in the valuation of trading securities and derivatives where quoted market prices are not available are accounted for in the line item “Dealing profits” in the Profit and Loss Account and the “Other assets” line item in our balance sheet.
      We could have chosen, in the current period, estimates that would have had a materially different impact on our financial presentation. Had management used different assumptions regarding the interest rates, volatility, exchange rates, the credit rating of the counterparty, and valuation adjustments, a larger or smaller change in the valuation of trading securities and derivatives where quoted market prices are not available would have resulted that could have had a material impact on Abbey’s reported operating loss in 2003.
      For details of our US GAAP accounting policy refer to Note 58 of the financial statements.

(d) Long-term assurance business
Abbey accounts for the value of the shareholders’ interest in the long-term assurance business using the embedded value basis of accounting, in accordance with UK GAAP for banking groups that own life assurance operations. The embedded value is comprised of the net tangible assets of the life assurance subsidiaries and the present value of the in-force business, which is calculated by projecting future surpluses and other net cash flows attributable to the shareholders arising from business written by the balance sheet date and discounting the result at a rate which reflects the shareholders’ overall risk premium.
      Future surpluses will depend on lapse rates, mortality, persistency, investment returns for various categories of investments and levels of expenses (both salary and non-salary). Surpluses are estimated by management through assumptions about future experience, having regard to both actual experience and current economic trends. Surpluses expected to emerge in the future are discounted at risk-adjusted discount rates after provision has been made for taxation. There is an acceptable range into which these assumptions can validly fall, and the use of different assumptions or changes to these assumptions may cause the present value of future surpluses to differ from those assumed at the balance sheet date. This could significantly affect the income recognised, and the value attributed to the in-force business, in the accounts.
      The value of the in-force business could also be affected by changes in the amounts and timing of other net cash flows, principally annual management charges and other fees levied upon the policy holders, which are reflected in the Profit and Loss Account using unsmoothed fund values. In addition, to the extent that actual experience is different from that assumed, the effect will be recognised in the Profit and Loss Account for the period. Demographic assumptions are set individually by product. It is therefore not appropriate to apply

a global adjustment to these percentages as it would not give a meaningful sensitivity as different products will react differently or even contrarily to changes in economic conditions.
      With respect to the provision required relating to the shareholders’ liability for the realistic balance sheet position, there remains uncertainty as to the final form of the Financial Services Authority’s regulations in this area. As a result, the calculations of the year-end position, and the ultimate amounts of any additional capital to be borne by policyholders and shareholders, have not been finalised. A provision has therefore been made based on management’s current estimate of the potential cost to the shareholder, though it is possible that the final cost will be significantly higher or lower. If we had made different judgements as to the likely outcome of the uncertainties above, the provision would have been increased or reduced significantly.

(e) Impairment of goodwill
The carrying value of goodwill is stated at cost less accumulated amortisation. The carrying value of goodwill is written down by the amount of any impairment, and the loss is recognised in the Profit and Loss Account in the period in which this occurs. Should an external event reverse the effects of a previous impairment, the carrying value of the goodwill may be written up to a value no higher than the original amortised cost. Impairments are calculated with reference to the discounted cash flows of the entity or income generating unit. Assumptions about expected future cash flows require management to make assumptions about interest rates, the health of the economy and operating costs. This involves significant judgement because such factors have fluctuated in the past and are expected to continue to do so.
      We consider that the accounting estimate related to impairment of goodwill is a “critical accounting estimate” because: (i) it is highly susceptible to change from period to period because it requires management to make assumptions about future cash flows, interest rates, the health of the economy and operating costs, and (ii) the impact that recognising a goodwill impairment charge would have on the assets reported on our balance sheet as well as on our net profit/ (loss) could be material.
      Goodwill impairment charges are accounted for in the line item “Impairment of goodwill” in the Profit and Loss Account and the “Intangible fixed assets” line item in our balance sheet.
      We could have chosen, in the current period, estimates that would have had a materially different impact on our financial presentation. Had management used different assumptions regarding the future cash flows, interest rates, the health of the economy and operating costs, a goodwill impairment charge would have resulted that could have had a material impact on Abbey’s reported operating loss in 2003.

Change in accounting policy
Shares purchased through Employee Share Option Plans are held at cost, and taken as a deduction from Shareholders’ Equity in accordance with UITF 38, “Accounting for ESOP Trusts”. Previously, these were accounted for as Other Assets at the lower of cost and net realisable value, with any impairments being taken to the Profit and Loss Account.
      The profit and loss impact of this change in accounting policy was to decrease 2002 loss before tax by £37m (2001: nil impact).

Change in accounting estimates
During the year, the basis by which embedded value is calculated was changed from a passive to an active economic basis. This new approach involves applying actual asset mix to economic assumptions (e.g. rates of investment returns, inflation) set with reference to market conditions at the valuation date. Previously, long-term economic and asset allocation assumptions were set by management based on their assessment of long-term trends rather than the current position. As this is a change in estimate, a restatement of prior periods’ results is not required.

Potential impact of Consultation Paper 195
The Financial Services Authority is due to introduce new supervision rules for all regulated business (including Life companies) in mid-to-late 2004, under a new Integrated Prudential Sourcebook applicable from the start of 2005. This will have an impact on our systems and controls as well as on capital and solvency requirements.
     For Life companies writing with-profits business the key implications for capital requirements will arise from the need to consider the value of liabilities due to policyholders calculated on a “realistic” basis as set out under Consultation Paper 195. The “realistic” value will represent all contractual and constructive liabilities to policyholders. Constructive liabilities arise out of a company’s past practice or market announcements, rather than arising from contractual terms. The contractual and constructive liabilities to policy holders include options and guarantees such as guaranteed annuity options, which have been subject to much publicity. In addition, the proposals require an appropriate risk capital margin for credit, market, operational and other risks. The overall impact on our Life companies will depend on the nature of the products written and in particular the nature of guarantees within products. Many of these guarantees and options have been written into with-profit policies and annuities, hence it is reasonable to assume that the new requirements will negatively impact those products, a view generally shared within the industry.
     Abbey has set up a project to consider the implications of the Integrated Prudential Sourcebook including an assessment of the capital and operational implications for the Life businesses. A detailed gap analysis has been completed to identify additional operational requirements for the new regulations, which will be implemented throughout 2004. In line with industry best practice, Abbey has developed, and is refining, appropriate models to determine the required level of risk-based capital. This is dependent upon Abbey’s future investment strategy for the relevant funds, which will continue to balance both policyholder and shareholder needs. At this stage it is difficult to quantify the final impact on risk-based capital. Considerable uncertainties remain, arising from the Financial Services Authority’s clarifications needed and refinement of “realistic” model calculations. However, the effect of provisions made in 2002 and 2003 will mean Abbey has already made significant strides towards providing for the cost of guarantees and options on a “realistic” basis as required under the new requirements.
     In addition, the Financial Services Authority has published its Consultation Paper 207, treating with-profits policy holders fairly, which sets out a wide range of proposals covering the operation of with-profits funds, including the calculation of payouts on maturities and surrenders on with-profits policies. The implications of these changes are being considered as part of Abbey’s overall Integrated Prudential Sourcebook project.

Potential impact of the Basel II Capital Accord
The Basel II Capital Accord (“Basel II”) is expected to introduce, for banks, more risk-sensitive approaches for the calculation of regulatory capital for credit risks, and a new approach for calculating regulatory capital for operational risks. In addition, Basel II introduces new requirements for disclosure by banks of key risk information and additional requirements relating to risk management and capital planning.
     Basel II is currently expected to run in parallel with the existing supervisory regime during 2006, and should be implemented in the UK by the Financial Services Authority, along with the equivalent European Directive, via the Integrated Prudential Sourcebook, in 2007. Basel II is due to be finalised in mid-2004, with the Financial Services Authority’s next consultation paper on implementation scheduled for publication in the third quarter of 2004.
     A major project is underway to prepare Abbey for the new requirements and we are currently on schedule, assuming there are no major changes to the draft proposals. Abbey’s strategic aim continues to be to achieve the Advanced Internal Ratings-Based Approach for credit risks for its material portfolios and initially to adopt the Standardised Approach for operational risks, with the aim of moving to the Advanced Measurement Approach in due course. As with all users of the Internal Ratings-Based Approach, Abbey is expected to be subject to capital floors of 90% and then 80% of the capital calculated under the previous methodology, in the first two years of implementation. This will initially limit the potential benefit to a maximum of 10% and 20% of capital requirements, as they would be calculated under current rules in years one and two, respectively.
     In light of the timetable set out above, it is still not possible to be precise about the impact of Basel II on Abbey’s regulatory capital ratios. However, Abbey anticipates that it will be able to provide more precise information in early 2005. An indication of the potential effect of the key changes is on the next page.