# FORM 6-K

SECURITIES
  AND EXCHANGE COMMISSION

Washington,
  D.C. 20549

# Report of
  Foreign Issuer

# Pursuant
  to Rule 13a-16 or 15d-16 of

# Securities
  Exchange Act of 1934

For the month
  of July 2004

ABBEY NATIONAL
  PLC 
  (Translation of registrants name into English)

Abbey National
  House, 2 Triton Square, Regent's Place
London NW1 3AN, England   
   (Address of principal executive offices)

|Indicate
      by check mark whether the registrant files or will file annual reports under
      cover Form 20-F or Form 40-F.
|-------------------------------------------------------------------------------------------------------------------------------

Form 20-F . . . .X. . . . Form 40-F . . . . . . . . Indicate
        by check mark whether the registrant by furnishing the information contained
        in this Form is also thereby furnishing the information to the Commission
        pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes
  . . . . . . . No . . .X. . . .

---



2004 Interim Financial Results

RESULTS SUMMARY

A detailed description of the basis of
results presentation is included in Section 2.4.5, including a detailed
explanation of the main differences between 'statutory' and 'trading' results
disclosed.

|                                                            | 6 months to
      30 June 2004 | 6 months to
      31 December 2003 | 6 months to
      30 June 2003
|----------------------------------------------------------- | ------------------------------ | ---------------------------------- | ------------------------------
|                                                            | £ m___________                 | £ m___________                     | £ m___________                
|Profit / (loss) before
tax                                  |                                |                                    |                               
|                                                            |                                |                                    |                               
|Personal Financial Services (PFS)                           | 340                            | (116)                              | 351                           
|Portfolio Business Unit (PBU)                               | 10___________                  | (426)___________                   | (495)___________              
|                                                            |                                |                                    |                               
|Statutory profit / (loss) before
      tax                  | 350                            | (542)                              | (144)                         
|                                                            |                                |                                    |                               
|Key ratios                                                  |                                |                                    |                               
|                                                            |                                |                                    |                               
|Abbey earnings / (loss) per share (pence)
      (1)         | 13.0p                          | (40.4)p                            | (12.0)p                       
|                                                            |                                |                                    |                               
|Dividend per share (pence)                                  | 8.33p                          | 16.67p                             | 8.33p                         
|                                                            |                                |                                    |                               
|Tier 1 capital ratio                                        | 10.9%                          | 10.1%                              | 10.9%                         
|Equity Tier 1 capital ratio                                 | 7.5%                           | 6.9%                               | 7.6%                          
|                                                            |                                |                                    |                               
|Equity shareholders' funds per ordinary share
      (pence) | 328p                           | 321p                               | 381p                          
|                                                            |                                |                                    |                               
|PFS trading data:                                           |                                |                                    |                               
|                                                            |                                |                                    |                               
|Trading income (2)                                          | 1,319                          | 1,374                              | 1,415                         
|Trading expenses (2)                                        | (783)                          | (817)                              | (760)                         
|Trading provisions (2)                                      | (68)___________                | (124)___________                   | (67)___________               
|                                                            |                                |                                    |                               
|Trading profit before tax                                   | 468                            | 433                                | 588                           
|                                                            |                                |                                    |                               
|Of which:                                                   |                                |                                    |                               
|                                                            |                                |                                    |                               
|Banking and Savings                                         | 353                            | 401                                | 475                           
|Investment and Protection                                   | 115                            | 133                                | 106                           
|General Insurance                                           | 36                             | 44                                 | 29                            
|Abbey Financial Markets                                     | 75                             | 42                                 | 98                            
|Group Infrastructure                                        | (111)___________               | (187)___________                   | (120)___________              
|Trading profit before tax                                   | 468                            | 433                                | 588                           
|                                                            |                                |                                    |                               
|Trading earnings per share (pence)
      (3)                | 19.2p                          | 17.2p                              | 24.5p                         
|Trading cost: income ratio
      (4)                        | 59.4%                          | 59.5%                              | 53.7%                         
|                                                            |                                |                                    |                               
|PFS balance sheet                                           |                                |                                    |                               
|                                                            |                                |                                    |                               
|Total risk weighted assets                                  | £51.6bn                        | £52.2bn                            | £48.2bn                       
|                                                            |                                |                                    |                               
|Spread                                                      |                                |                                    |                               
|                                                            |                                |                                    |                               
|PFS Banking spread                                          | 1.58%                          | 1.75%                              | 1.86%                         
|                                                            |                                |                                    |                               
|PBU balance sheet:                                          |                                |                                    |                               
|                                                            |                                |                                    |                               
|Total assets                                                | £8.3bn                         | £12.3bn                            | £25.7bn                       
|Total risk weighted assets                                  | £5.9bn                         | £9.0bn                             | £17.7bn                       
|Notional equity release
      (5)                           | £1.2bn___________              | £1.0bn___________                  | £0.8bn___________             

(1) The Abbey earnings per
share comprises PFS earnings per share of 12.4p and PBU earnings per share of
0.6p. Tax rates used are contained in Section 6.7.

(2) As set out in detail in
Section 2.4.5, in deriving the trading results, certain charges in relation to
the cost programme and strategic restructuring process are excluded, as are
investment variances and other specific life-related adjustments, and goodwill
charges. Section 2.4 provides a breakdown of the items excluded to arrive at the
'trading performance' definition by profit and loss line.

(3) Calculated based on the
trading profit before tax, assuming a 30% tax rate (2003 30%), and after a
minority interest charge of £24m (Half 1 2003: £28 m; Half 2 2003: £27m) and
preference share dividends of £24m (Half 1 2003: £28m; Half 2 2003: £28m) with a
reconciliation to the statutory data in Section 2.4.4.

(4) If adjusted for expenses
accounted for as part of embedded value, the ratio would be 61.8% (Half 1 2003:
56.6%; Half 2 2003: 61.9%).

(5) A detailed working of
the notional equity release is contained in Section 4.1.

CHIEF EXECUTIVE'S REVIEW

Overview

We are nearly halfway through our three
year transformation, and have moved back into overall profit for the first time
in two years, reporting a statutory profit before tax of £350m (Half 1 2003:
loss of £144m) and PFS trading profit before tax of £468m (Half 1 2003: £588m).

"17 months ago the company was facing
three areas of serious risk that threatened Abbey's future - these have been
addressed and we are now able to focus all of our time and effort on growing the
Personal Financial Services (PFS) business.

We are undertaking a major turnaround
of our core PFS business, and we have made excellent progress in rebuilding and
revitalising Abbey. We have reversed years of under-investment in Abbey's
people, products, service levels and systems while improving efficiency allowing
us to keep the cost base flat, and removing pricing eyesores that did not fit
with our brand positioning. This level of change has hurt our business
performance in the first half of the year, as we had previously warned. However,
the period of biggest disruption is behind us and we now have a competitive PFS
platform.

There is still some way to go, but we
can take heart from the enthusiastic response of our people, and we believe our
customers are already enjoying a better all round experience compared to 12
months ago. We will build on this in the second half of the year.

It will take time before the improved
customer experience is recognised by customers and begins to increase business
levels and build sustainable revenue growth. There are no short cuts in this
regard - we are investing in Abbey's long-term future. We are still targeting
the second half of 2004 as being the turning point for PFS."

Luqman Arnold

> Luqman
>                                 Arnold

Summary of the financial results for
the first half of 2004:

> PFS trading profit before
tax of £468m (Half 1 2003: £588m), but up 8% on the second half of 2003 and
better than expected, with an improved profit before tax in the second quarter;

> an overall Group profit
before tax of £350m (Half 1 2003: loss of £144m), consisting of:

> > PFS trading profit (as
>   above); less
>   > PFS 'non-trading' charges
>   of £128m (Half 1 2003: £237m), largely comprising investment variances in our
>   life companies, re-organisation expenses in relation to the cost reduction
>   initiatives and the one-off cost of complying with new regulatory
>   requirements; and
>   > Portfolio Business Unit
>   (PBU) profit before tax of £10m (Half 1 2003: loss of £495m), together with
>   continued success in asset sales, with a further 33% reduction in overall
>   asset balances, including a 54% reduction in sub-investment grade assets.

> an Equity Tier 1 ratio of
7.5% (December 2003: 6.9%) and Tier 1 ratio of 10.9% (December 2003: 10.1%),
with the improvement due to a return to profit on a group basis and a further
capital release from the PBU. The proposed interim dividend is 8.33 pence, in
line with the interim payment made in 2003.

Our PFS businesses continue to face
competitive markets and a challenging trading environment for investment sales.
There is also a degree of ongoing disruption from the transformation programme,
including the lead-time before new people, technology and continued high levels
of training begin to have a positive impact. However, we are now seeing positive
lead indicators in a number of areas.

In the PBU, the mark-to-market deficit
on debt securities and loans has been reduced to nil. In line with the year to
date position, the remaining disposals targeted for 2004 are expected at levels
consistent with net book value in aggregate.



Financial and Business Highlights -
Personal Financial Services

PFS trading profit before tax of £468m
was down 20% on the corresponding period (Half 1 2003: £588m), but better than
expected and up on Half 2 of 2003 as a result of:

> a fall in net interest
income of £51m driven by Banking and Savings. This reflected the narrowing of
the spread to 1.58% (Half 2 2003: 1.75%), in line with expectations, largely due
to SVR re-pricing and other pressures on mortgage margins. The spread decline is
expected to moderate substantially in the second half;

> a decrease of £4m in
non-interest income, largely attributable to a lower contribution from
Investment and Protection reflecting the lower earnings from the in-force
business as a result of 2003 write-downs and changes in the discount rate;

> trading costs (including
expenses reported as part of embedded value) of £867m down 4% on the second half
of 2003, with underlying inflation continuing to be offset by incremental cost
programme savings, and a more even phasing of marketing spend. The annualised
benefits of the cost programme are now running at £183m, up £18m to date in
2004, and overall the cost base is expected to be held broadly flat for the
year; and

> a lower provisions charge,
reflecting non-recurrence of a provision of £50m for product mis-selling raised
in 2003, and a further improvement in mortgage credit quality more than
offsetting volume related growth in unsecured lending provisions and fraud
write-offs in relation to bank accounts.

On a trading basis earnings per share
of 19.2 pence, were up from 17.2 pence in the second half of 2003.

PFS statutory profit before tax was
£340m (Half 2 2003: loss of £116m), with the improvement largely attributable to
lower re-organisation costs, as well as a lower charge in relation to the life
assurance business. In total, non-trading charges were £128m (Half 2 2003:
£549m).

As expected, PFS new business flows in
the first half followed recent trends overall, though the extent of business
change being implemented has had an adverse impact. We had previously flagged
that this could happen, and this has been noticeable both in our direct and
intermediary channels, in particular in mortgages. Notwithstanding this, the
franchise remains strong and customer lead indicators have begun to turn up.
There have been some creditable performances, and where we have faced
challenges, we have started to make headway.

In summary, the new business flows
include:

> total retail deposit flows
turned around positively in the second quarter, with an inflow of £0.2bn
compared to an outflow of £1.2bn in the first three months. The improvement
reflects the first fruits of action taken, including new product launches and
marketing campaigns, changes to pricing and a focus on profitable branch-based
accounts. Importantly, outflows from back-book branch accounts were offset by
new branch-based accounts such as Flexible Saver. We are aiming to build on the
second quarter performance with continuing net inflows targeted for the
remainder of the year;

> gross mortgage lending share
slipped to 9.0% from 10.5% in Half 2 2003. This was almost entirely due to a
reduced share of the remortgage market, which is comparatively easier to regain
and typically of low profitability. Our combined share of the more loyal and
profitable first time buyer and home mover segment has remained in the range 10
- 12%;

> overall net lending was
£3.2bn, an estimated market share of 6.1%, with share of capital repayments
again below our stock share. We have managed to sustain a c10bps widening of
average new business pricing which, we are confident has not had an adverse
impact on gross lending. We have taken many steps to improve the fundamentals of
mortgage sales, in some cases at short-term cost. Additionally, processing
backlogs in the intermediary channel have now been addressed, a new fast track
process for lending with LTV less than 60% introduced, and some selective best
buy products have been introduced to the range. As a result, mortgage
applications have started to move sharply up again in recent weeks. In recent
months, our extensive customer tracking survey has shown customer willingness to
consider Abbey as their mortgage provider improving, with our rank versus direct
peers improving from 4th to joint 1st, and closing a 10 point gap with HBOS that
existed at the time of the business relaunch;

> credit quality remains
excellent, with a 16% reduction in 3-month-plus mortgage arrears cases in 2004;
and

> in other areas, we achieved
new bank account openings of 191,000, with Abbey branded in credit balances up
5% to £4.5bn in the first half alone, and a 10% increase in unsecured lending
balances with new unsecured personal loan business up 22%.

The period of greatest disruption is
now behind us, and our new people in key pricing and product design, marketing
and distribution roles are now becoming increasingly effective. In the areas of
mortgages and savings we have taken corrective action and remain optimistic
about the outlook and our strength in these markets.



Tackling three areas of serious risk

17 months ago there were three areas of
serious risk that threatened Abbey's future. These risks have been well
documented, with high levels of disclosure provided over this period to allow
investors to understand the size of the challenges. Mitigating these risks was
our greatest immediate priority. At the half way stage of our transformation,
these risks (outlined below) have substantially been removed.

Risk exposures in the Wholesale Bank
substantially reduced, exit plans for the other PBU businesses progressing well,
with no further material losses anticipated:

> a further 33% reduction in
PBU assets, including a 54% reduction in sub-investment grade assets, with the
PBU reporting an overall profit before tax in the first half;

> current PBU asset balance of
£8.3bn, down 86% from the £60.0bn opening position;

> all remaining debt
securities and loan portfolios provisioned to reflect our best estimates of
realisable market value and the remaining unrealised deficit of £66m at the
year-end eliminated;

> the disposal of the majority
of the remaining assets is well advanced; and

> £1.2bn of capital has been
released to the centre to date, with the final result in 2004 likely to be
significantly better than current market expectations.

Review of the closed with profits funds
completed, with funds in balance under the proposed new regulatory framework (CP
195), and further risk to shareholder capital substantially
reduced:

> completion of an extensive
review of the with profits funds, undertaken over many months, including
agreement with the Financial Services Authority (FSA), and increased clarity for
policyholders;

> provisions previously raised
in relation to realistic deficits were adequate to offset the required usage of
shareholder monies in the with profits funds. There is no adverse charge to
capital or profit as a result of the agreement. A substantial improvement in
quality and transparency of the capital invested in the Life companies has been
reported;

> ongoing risks in the
business have been minimised, through extensive hedging, reassurance of a high
proportion of annuity and mortality risk, and no ongoing investment business
being written with guarantees underpinned by the shareholder; and

> by addressing this issue we
can start to rebuild relationships in the IFA community, and move forward with
more confidence in the investment market in the latter part of 2004 and into
2005.

Completed a comprehensive set of improvements to
Abbey's risk management approach and the bank's compliance arrangements,
effectively mitigating the regulatory risk that was overhanging the
company:

> extensive changes at senior
management level in the risk and compliance functions including several new
external hires;

> improved systems and
controls now in place;

> new anti-money laundering
unit up and running; and

> introduced significant
improvements to how we identify customers opening new accounts, with all
front-line employees trained in the new procedures and all account applications
and supporting literature rewritten.

There are further regulatory challenges
ahead, in particular the introduction of new mortgage regulations from November
this year. This is intensive work but the changes we have made to our systems
and controls mean we are much better equipped for the future.

Capital and Dividends

A return to profitability on a group
basis and the continued success in disposing of PBU assets has resulted in an
improvement to the capital ratios, with a Tier 1 ratio of 10.9% and Equity Tier
1 of 7.5% (December 2003: 10.1% and 6.9% respectively).

An interim dividend of 8.33p has been
declared, consistent with the same point in 2003. The dividend takes into
account our view of the remaining execution challenges and opportunities
surrounding the PFS transformation programme.

The amount of capital required by the
ongoing PFS businesses must be consistent with retaining a robust credit rating.
Clarity on this is now dependent on the turnaround of the PFS business and
resolution of remaining uncertainty surrounding the impact of International
Accounting Standards, Basel II, and other regulatory and accounting issues.
Although some of the impacts appear more positive than we had feared at the
year-end, it remains too early to be certain about the prospects for or the
potential size of any capital surplus.



Strategic update - meeting the
priorities set out at the start of the year

In addition to tackling the risks
facing Abbey, we have made significant progress in a complete overhaul of the
PFS business. In the last 17 months we have restructured the company, improved
the management quality, invested in our people and the tools they need to do
their jobs, and improved the range of products we offer to our customers. At the
same time, we are streamlining our operations to improve customer service and
reduce costs. In September of last year, we relaunched the business,
fundamentally changing our approach to customers.

Since the start of the cost programme,
we have taken over £180m of costs out of the business, keeping costs flat after
inflation and reinvestment.

The speed of change has been maintained
in the first half of 2004, with notable progress including:

Investing in our people

> the population of management
below Board level has been reduced by 20% since September last year. We are
bringing in new talent to the company with 40% of this group new to Abbey, of
which 16 have joined since January. The effectiveness of this key group is now
building fast;

> in total, the level of
training being delivered has continued at the high levels reported in the second
half of last year, focusing on the new Customer Relationship Management (CRM)
software, advice model and supporting people moving into new roles. An increased
level of business as usual training is also continuing, including induction
training that has contributed to a fall in new joiner turnover; and

> since the start of 2004 we
have increased the customer-facing staffing levels in our customer sales
division by approaching 400 full-time equivalents.

Catch-up in IT and systems

The rollout of our new CRM system (One
on One) is fully on track.

> we have increased the number
of staff using the One on One system from 8,000 at year end to 11,000 at the end
of June 2004; and

> the system itself is best in
class, providing our people with a complete view of customers across all
channels, as well as being able to deliver sales prompts.

A wider programme of upgrading IT
capability has also continued at pace in the first half.

> of 40,000 pieces of
equipment to be upgraded, at the end of June we had installed 32,000 - with the
remaining upgrades expected to be completed in the third quarter of this year;
and

> completed the upgrade of the
telecommunications platform in the branches, which is one of the largest
voice-over-IP networks of its kind in UK PFS.

Continuing the rationalisation of
operations and sales servicing

This includes the relocation of UK
functions to larger sites in the UK and India. We have made good progress
following the announcement of the closure of three major sites in January.

> we have continued to
transfer roles to our service centres in India, bringing the total to 380,
working on bank account service calls and protection new business processing. We
expect more than 600 roles will be operating from India by the end of 2004;

> service and complaints
levels to date have been comparable, if not better, than the UK equivalent -
reflecting our careful approach in planning, training and handovers;

> in the UK we have
transferred more than 1,000 roles from offices in Edinburgh to existing sites in
Glasgow and will have completed the closure of our Derby and Warrington sites by
the year end; and

> a further 17 smaller offices
have also been closed since the beginning of the year with more closures planned
for the second half of the year.

In January, we also announced a change
in our approach to fund management to deliver better investment performance and
choice at affordable cost. As a result, we closed a large part of our in-house
fund management operation whilst retaining specialist functions where we have a
proven track record and skills in customer profiling, asset allocation, manager
selection and administration. We have adopted a multi-manager philosophy for
fund management, which we believe perfectly suits our customer positioning,
incorporating both the highest probability of long-term sustainable performance
as well as choice.



New approach to customers

Following the relaunch of the business
last year, the initial positive response has been consolidated through the year
to date.

> staff morale and reaction to
the goals and aspirations of the business remains positive; and

> we have continued to change
the way we communicate with our customers, through our people, literature,
letters, advertising and all round appearance.

Most of the work that we have done to
support the advice model is now in place, and the new approach to customers is
being embedded across our sales and operational channels.

> the re-organisation of the
sales force is well progressed with 850 Customer Managers already transferred
into the new role of Personal Financial Consultant (PFC). The new PFC role
allows the individual to give advice on a wider range of unregulated products
(including banking, savings, insurance and unsecured loans), providing customers
with more seamless service and reducing waiting times to obtain an interview and
we have also already increased capacity to provide mortgage advice compared to
12 months ago;

> lending and savings decision
trees are now in place to help identify customers' needs; and

> the extent to which the PFC
role will be extended in the future to provide guidance on an appropriate range
of investment products is currently under review, and will be influenced by
ongoing Sandler and FSA reviews.

Branch review nearing completion

Over the last nine months we have
undertaken a fundamental review of our retail estate - focusing on the reach and
location of our branch network, as well the design and pilot of new branch
layouts and retail formats. The review is one of the most extensive undertaken,
and the first complete review undertaken by Abbey since the late 1980s. With
only 5% of the network benefiting from adequate levels of investment and
attention over the last five years, it is important to be clear on where
investment is most needed.

The review matches our current network
against the changing retailing map of the UK, customer demographics, customer
demand and level of competition. Initial findings suggest that the overall
number of branches is about right although they might not all be in the right
place, or have the right level of facilities such as till positions, ATMs, or
customer interview desks.

We are launching a trial of a number of
new physical formats, including kiosks, columns and new style branches, with
more to follow by the end of the year. Across the branch network as a whole,
there will be differing levels of refurbishment based on our assessment of
commercial return, which should allow visible progress in the first year of the
programme.

Difficulties in design and planning in
relation to fascias and signage, which reduced the impact on the high street and
delayed rollout, have now been overcome and we are accelerating the remaining
re-branding work.

Strategic Update - improving the
customer experience

When we began the transformation of
Abbey, we based the new personal financial services business on an agenda of
consumer fairness, anticipating the growing importance of consumer rights in
financial services. We reinforced this in our business relaunch in September
last year. This approach drives the fundamental way we deal with customers, from
greeting them in branches to new product design.

The industry's recognition of consumer
rights has happened more quickly than we expected. Competitors and regulators
are reflecting this in their own recent moves. We are already some way down the
track, and although there is much yet to do, Abbey customers are already reaping
the benefits, from fairer charges to better service standards.

Overall customer satisfaction is
robust:

> we have significantly
increased the customer tracking research undertaken and used within the
business; and

> in terms of overall
satisfaction, Abbey is still in the middle of the peer group, but has seen a
relative improvement in recent months, which is a positive result given the
short-term disruption of our change programme.

Back-book pricing eyesores
tackled:

> completed the realignment of
the SVR pricing to the peer group in November of last year, in total equating to
35bps over a 12 month period; and

> removal of Instant Saver
from sale, with all customers now mailed and advised of alternative options,
with over 300,000 customers subsequently transferred to alternative Abbey
products.

> 

Better products, distinctive offers:

> in the mortgage market we
are moving from plain, rate-led offers to a range of options that meet customer
needs more fully. These are presented in easy to understand groups to make sure
customers make the right choice, and are not swayed by headline rates alone.
This has included the launch of 'deal for life' late in 2003, the 'reward
mortgage' earlier this year, and generally upgrading our range of flexible
mortgages. There is more to do, but we have made a good start and feedback from
new mortgage customers is positive;

> we have relaunched Flexible
Saver in the second quarter - a product that we would claim to be 'best in the
high street' and consistent with our focus on profitable branch-based accounts.
We have added a passbook, removed differential channel pricing, and introduced a
new base rate guarantee and special bonus for all customers. We have also moved
our pricing on e-saver to make it more competitive, with cahoot also offering
competitive rates and attracting new customers to Abbey;

> in Scottish Provident we
have a market leading protection product - which has won a number of industry
awards including, in recent months, 'Protection Provider of the Year' at the
Financial Adviser awards. In multi-manager we have an excellent product that
offers customers access to the best fund managers at an affordable price;

> for our banking customers we
have simplified our account range and charging structure, making it fairer and
easier to understand, and less harsh on occasional slips over agreed limits;

> we have vastly improved the
Abbey e-banking site, using what we have learnt from cahoot. Customer
satisfaction with the e-banking service has increased from 65% in April of last
year to 75% currently, with the number of regular users up by 28%. We now have
around a quarter of a million regular users of the Abbey e-banking service, and
around half a million cahoot customers; and

> we are continuing to change
the way we communicate with customers, removing jargon and sticking to plain
English. As part of this we have reduced the number of letters by 40% from over
9,000 to around 5,500, all of which have been re-written.

Raising service standards across all
our channels:

In the last year we have made excellent
progress in addressing service issues. In 2003, we closed much of the gap that
had opened up between Abbey and our peers, and have since built on that
progress. Inevitably, the extent of change that we are asking our people to cope
with means that business issues that put pressure on performance still arise.
This was evident in the first half, particularly in relation to mortgage
processing in the intermediary channel. It is a significant achievement in
itself that there have not been more examples, and we are undoubtedly ahead of
where we expected to be at this point in the transformation:

> internal mystery shopping
research across the branches has seen the proportion of branches reaching our
internal targets for service increase from 82% to 97% - and we have recently
increased the target standard as part of our push to go beyond normal banking
standards;

> in our telephone operations
we have added extra people and have continued to upgrade the infrastructure and
software capability. We have invested in call recording technology, removed
unnecessary administration and have formalised feedback and coaching for staff
on service performance - with added real time tracking capability being rolled
out later in the year. From an unacceptable starting point, we have raised most
of our telephone centres up to industry standards;

> our banking and savings
service centres are now answering nearly 50% more calls within 20 seconds
compared to a year ago. Calls taken from India are of a comparable service
standard and with fewer complaints;

> in our sales operations we
have halved the number of abandoned calls, and are now consistently answering
over 80% of calls within 20 seconds;

> in overall terms, the
percentage of Abbey's customers that rate the telephone service as 'good or
better' is up to 81% from 70% a year ago;

> we have reviewed our lending
policy, reducing the extent of paperwork and form filling that is required, as
well as introducing a fast track service. Even after these changes we remain at
the conservative end of market practice, but have simplified the process from a
customer and staff viewpoint and increased service levels; and

> building on the successful
introducer internet platform for mortgages, we have added straight through
processing functionality for both general insurance and protection products. 45%
of all protection applications are now being received online, and intermediaries
are able to get instant quotes direct online from Scottish Provident, speeding
up the process and reducing administration.

> 

Looking ahead

The majority of the investment in
people, products, pricing, service and systems is done. The challenge now is to
ensure we are making the most of this investment, by deeply ingraining the new
ways of dealing with customers, promoting our products even more effectively,
and ensuring new systems are used with maximum efficiency.

There is more training to be done to
bring this about, and this will continue to put short-term pressures on the
drive to improve business performance.

The final element of our investment
programme will be addressed in the autumn, when we will have the full results of
our review of branch locations and formats. We will continue our revamp of our
product range, particularly in mortgages and savings. New products will be
designed on the guiding principles of the brand, such as fairness and
transparency, and priced attractively to secure good levels of new business.
They will be promoted more aggressively than in the past.

With the bulk of major changes to the
business behind us, we continue to target an improved second half in the PFS
business.

1. GROUP SUMMARY

1.1: Summarised statutory consolidated profit and loss
account

|                                                            | 6 months to 30 June
      2004__________________________ | 6 months to 30 June
      2003_________________________
|----------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------
|                                                            | TOTAL                                                    | PFS                                                    
|                                                            | £ m______                                                | £ m______                                              
|                                                            |                                                          |                                                        
|Net interest income
(2)                                     | 798                                                      | 32                                                     
|Non-interest income
(2)                                     | 462______                                                | 66______                                               
|Total income                                                | 1,260                                                    | 98                                                     
|                                                            |                                                          |                                                        
|Administrative expenses                                     | (840)                                                    | (64)                                                   
|Goodwill impairment and
    amortisation                    | (10)                                                     | -                                                      
|Depreciation on operating lease
      assets                | -                                                        | (76)                                                   
|Provisions for bad and doubtful
    debts                   | (67)                                                     | 9                                                      
|Provisions for contingent liabilities and
      commitments | (3)                                                      | -                                                      
|Amounts written off fixed asset
      investments           | -______                                                  | 6______                                                
|Operating profit / (loss)                                   | 340                                                      | (27)                                                   
|                                                            |                                                          |                                                        
|Income from associated
    undertakings                     | -                                                        | 3                                                      
|Profit on disposal of Group
      undertakings              | -______                                                  | 34______                                               
|Profit / (loss) on ordinary activities before
      tax     | 340______                                                | 10______                                               
|                                                            |                                                          |                                                        
|Earnings / (loss) per ordinary
    share                    |                                                          |                                                        
|Dividend per ordinary share                                 |                                                          |                                                        
|                                                            |                                                          |                                                        
|Equity shareholders' funds (£ m)                            |                                                          |                                                        
|Equity shareholders' funds per ordinary
      share         |                                                          |                                                        
|                                                            |                                                          |                                                        
|Tier 1 capital ratio                                        |                                                          |                                                        
|Equity Tier 1 capital ratio                                 |                                                          |                                                        
|Life-adjusted Equity Tier 1 capital ratio
      (1)         |                                                          |                                                        
|Closing risk weighted assets (£
    bn)                     | 51.6______                                               | 5.9______                                              

(1) A detailed calculation
for 2004 is provided in Section 4.1.

(2) Note, from the first
half of 2004, within Abbey Financial Markets (previously named Treasury
Services) there has been a presentational change such that accrued interest on
mark-to-market securities and money market instruments is now classified within
dealing profits (in non-interest income) rather than in net interest income.
This has no impact on profit. In the 6 months to 30 June 2003 this change
resulted in reclassification of £66m from net interest income to non-interest
income and the comparatives for that period have been amended to reflect this
change. Under the previous presentation net interest income in 2003 in PFS and
in total was £926m and £1,116m respectively and non-interest income £462m and
£246m respectively.

Total profit before tax of £350m
compared to a loss of £144m in 2003. Material movements by line include:

> net interest income of £830m
(Half 1 2003: £1,100m) down 25%, reflecting lower average interest earning
assets in the PBU and spread compression in the PFS;

> non-interest income of £528m
(Half 1 2003: £312m), up 69% as a result of the non-recurrence of certain
embedded value rebasing charges that impacted life assurance earnings in 2003,
in addition to lower loss realisations from PBU asset sales in 2004;

> administrative expenses of
£904m (Half 1 2003: £1,037m) down 13%. PFS expenses were lower than the same
period last year due to savings from the cost programme and reduced
re-organisation expenses, more than offsetting underlying business inflation.
PBU expenses fell due to the reduced size of the operations;

> goodwill of £10m relates
primarily to amortisation of the remaining Scottish Provident goodwill;

> provisions for bad and
doubtful debts of £58m (Half 1 2003: £226m), down 74% benefiting from lower PBU
provisions and the non-recurrence of provisions in relation to the Scottish
Provident contingent loan;

> provisions for contingent
liabilities and commitments down to £3m (Half 1 2003: £20m) following the
non-recurrence of PBU provisions made in 2003 ; and

> a release of amounts written
off fixed asset investments of £6m (Half 1 2003: £155m charge) reflecting the
disposal of PBU assets for amounts in excess of their existing written down
value.

1.2: Personal Financial Services (PFS) trading profit
before tax by business

|                                          | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|----------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                          | £
m_______________             | £
m_______________            | £
  m_______________          
|                                          |                                |                               |                               
|Abbey retail                              | 340                            | 385                           | 473                           
|Other (1)                                 | 13_______________              | 16_______________             | 2_______________              
|                                          |                                |                               |                               
|Banking and Savings                       | 353                            | 401                           | 475                           
|                                          |                                |                               |                               
|Abbey National Life                       | 39                             | 36                            | 43                            
|Scottish Mutual                           | 22                             | 32                            | 18                            
|Scottish Provident                        | 58                             | 68                            | 45                            
|Other                                     | (4)_______________             | (3)_______________            | -_______________              
|                                          |                                |                               |                               
|Investment and Protection                 | 115                            | 133                           | 106                           
|                                          |                                |                               |                               
|General Insurance                         | 36                             | 44                            | 29                            
|                                          |                                |                               |                               
|Abbey Financial Markets                   | 75                             | 42                            | 98                            
|                                          |                                |                               |                               
|Group Infrastructure                      | (111)_______________           | (187)_______________          | (120)_______________          
|PFS trading profit before tax             | 468_______________             | 433_______________            | 588_______________            
|                                          |                                |                               |                               
|Adjust for:(2)                            |                                |                               |                               
|                                          |                                |                               |                               
|- Embedded value charges and
    rebasing | (24)                           | (341)                         | (102)                         
|- Re-organisation expenses                | (94)                           | (189)                         | (126)                         
|- Goodwill charges                        | (10)_______________            | (19)_______________           | (9)_______________            
|PFS profit before tax                     | 340_______________             | (116)_______________          | 351_______________            

(1)Includes cahoot, Cater
Allen and Abbey International (previously named Abbey National
Offshore).

(2) The non-trading items
are described in Section 2.4.

PFS trading profit before tax of £468m was down 20%
on the first half of last year (Half 1 2003: £588m) but up 8% on the second
half.

6 months to 30 June 2004 versus 6
months to 30 June 2003:

> Banking and Savings trading
profit before tax decreased by 26% to £353m (Half 1 2003: £475m). This is
largely attributable to the reduction in the PFS Banking spread partly offset by
asset growth, with a modest rise in the expense base reflecting increased
customer-facing staffing levels;

> Investment and Protection
trading profit before tax increased to £115m (Half 1 2003: £106m). The
contribution from new business was up reflecting the re-establishment of
protection margins after an increase in reassurance costs in 2003, with a lower
charge for experience variance and changes in assumptions;

> General Insurance trading
profit before tax of £36m was £7m higher than Half 1 2003. Revenue has remained
stable due to margin increases in the second half of 2003, with lower costs
largely attributable to reduced volumes and property costs following
consolidation of sites;

> Trading profit before tax of
Abbey Financial Markets was £75m (Half 1 2003: £98m), representing a strong
performance given the smaller ongoing remit of the business, but lower than the
equivalent period last year that benefited from favourable trading opportunities
and conditions; and

> Group Infrastructure trading
loss before tax of £111m decreased by £9m (Half 1 2003: loss of £120m) due
partly to the allocation of more net interest cost, to reflect current gearing,
to the businesses.

> 

6 months to 30 June 2004 versus 6
months to 31 December 2003:

> Banking and Savings trading
profit before tax decreased by 12% to £353m (Half 2 2003: £401m) reflecting the
fall in the PFS Banking spread driven entirely by the asset spread, with a full
period of SVR repricing, reduced product redemption charges and a lower
free-to-go standard variable rate asset as a result of product maturities;

> Investment and Protection
trading profit before tax of £115m is down on Half 2 2003 of £133m largely due
to a decrease in the expected return following a reduction in the risk discount
rate and the impact of 2003 embedded value charges and rebasing. The
contribution from new business was lower reflecting the drop in investment
business volumes, while the intermediary protection business continued to
perform well, with the new business contribution in Scottish Provident up 12%;

> General Insurance trading
profit fell 18% to £36m (Half 2 2003 £44m), largely due to a fall in new
business volumes and policies in force;

> Trading profit before tax of
Abbey Financial Markets was £75m (Half 2 2003: £42m), reflecting improved
trading flows in the first half of 2004, specifically in equity and credit
derivatives; and

> Group Infrastructure trading
loss before tax fell by £76m to £111m (Half 2 2003: loss of £187m) largely due
to the non-recurrence of the £50m mis-selling provision raised in the second
half of 2003, and partly to a full allocation of interest expense to the
business in line with the current debt-to-equity funding mix.

> 

1.3: Portfolio Business Unit (PBU)
profit / (loss) before tax by business

|                                                                              | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|----------------------------------------------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                                                              | £
m_______________             | £
m_______________            | £
  m_______________          
|                                                                              |                                |                               |                               
|Wholesale Banking excluding provisions,
      impairments and disposal losses | 71                             | 27                            | 113                           
|Provisions, impairments and disposal
      losses                             | (19)_______________            | (443)_______________          | (568)_______________          
|                                                                              |                                |                               |                               
|Wholesale Banking                                                             | 52                             | (416)                         | (455)                         
|                                                                              |                                |                               |                               
|Motor Finance and Litigation
    Funding                                      | (36)                           | (48)                          | (2)                           
|International life assurance
      businesses                                 | 1                              | 7                             | (33)                          
|European Banking and other                                                    | (7)_______________             | 31_______________             | (5)_______________            
|PBU profit / (loss) before
tax                                                | 10_______________              | (426)_______________          | (495)_______________          

PBU assets and risk weighted assets
(RWAs) by business

|                                         | At 30 June
      2004_________________ | At 31 December
      2003___________________
|---------------------------------------- | -------------------------------------- | --------------------------------------------
|                                         | Assets                                 | RWAs                                        
|                                         | £ bn______                             | £ bn______                                  
|Debt securities                          | 0.5                                    | 0.1                                         
|Loan portfolio                           | 0.9                                    | 0.9                                         
|Leasing businesses                       | 4.1                                    | 2.7                                         
|Private Equity                           | -                                      | -                                           
|Other                                    | -______                                | -______                                     
|Wholesale Banking exit portfolios        | 5.5                                    | 3.7                                         
|Motor Finance and Litigation
    Funding | 1.3                                    | 1.4                                         
|European Banking and other               | 1.5______                              | 0.8______                                   
|Total PBU                                | 8.3______                              | 5.9______                                   

Note, the table excludes shareholder
net assets of the international life assurance businesses of £208m (December
2003: £207m), since they do not have an RWA equivalent.

> Total PBU assets of £8.3bn
were 33% lower than the £12.3bn at December 2003, with a 34% reduction in risk
weighted assets to £5.9bn (December 2003: £9.0bn). Overall, the PBU reported a
small profit before tax, with a £52m profit in the Wholesale Banking portfolios
being partly offset by continued provisioning and restructuring costs associated
with the wind down of the remaining Motor Finance and Litigation Funding
businesses;

> The improved performance in
the Wholesale Banking portfolios reflects the significantly lower absolute level
of asset disposals, and the provisioning to market realisable values taken at
the 2003 year-end. The majority of the balance of profit before tax in the first
six months relates to Porterbrook;

> Credit quality has improved
significantly following the reduction of over 50% in sub-investment grade and
equity exposure. This includes disposals of all the remaining aircraft ABS
portfolio and the majority of the project finance portfolio;

> The outstanding mark to
market deficit (net of provisions) on the debt securities portfolio remains
zero, with the equivalent figure on the loan portfolio now reduced to zero
(December 2003: £66m). The improvement in the loan portfolio deficit since the
year-end reflects improved asset sales (actual and expected). The deficits do
not cover the leasing portfolio, although aircraft leasing was written down to
management's estimate of realisable value at the 2003 year-end and the finance
leasing sales to date have been profitable. The market value of Porterbrook has
not yet been confirmed by a sales process and therefore may differ significantly
from the holding value; and

> The Motor Finance and
Litigation Funding loss before tax relates predominantly to additional
provisioning required particularly in Litigation Funding as part of the wind
down of these businesses, with a small profit reported in the international life
businesses and loss in the European Banking operations.

Across the PBU as a whole, a majority
of the remaining assets are well progressed in terms of the disposal process. No
further meaningful net losses, on asset sales in aggregate, are expected in
2004.

1.4: Personal Financial Services (PFS) business flows

|                                                    | 6 months to30 June
      2004_____________ | 6 months to31 Dec
      2003_____________ | 6 months to30 June
      2003_____________
|--------------------------------------------------- | ------------------------------------------ | ----------------------------------------- | ------------------------------------------
|Banking and Savings                                 |                                            |                                           |                                           
|Mortgages(1)                                        |                                            |                                           |                                           
|                                                    |                                            |                                           |                                           
|Gross mortgage lending                              | £13.0bn                                    | £16.2bn                                   | £12.9bn                                   
|Capital repayments                                  | £9.8bn                                     | £10.6bn                                   | £9.1bn                                    
|Net mortgage lending                                | £3.2bn                                     | £5.6bn                                    | £3.8bn                                    
|                                                    |                                            |                                           |                                           
|Mortgage stock                                      | £91.0bn                                    | £87.8bn                                   | £82.2bn                                   
|                                                    |                                            |                                           |                                           
|Of which:                                           |                                            |                                           |                                           
|- Abbey retail                                      | £87.8bn                                    | £84.7bn                                   | £79.3bn                                   
|- Housing Association                               | £3.2bn                                     | £3.1bn                                    | £2.9bn                                    
|                                                    |                                            |                                           |                                           
|Market share - gross mortgage
    lending           | 9.0%                                       | 10.5%                                     | 10.4%                                     
|Market share - capital repayments                   | 10.7%                                      | 10.9%                                     | 11.4%                                     
|Market share - net mortgage
    lending             | 6.1%                                       | 9.9%                                      | 8.6%                                      
|Market share - mortgage stock                       | 11.0%                                      | 11.3%                                     | 11.4%                                     
|                                                    |                                            |                                           |                                           
|Retail deposits: (2)                                |                                            |                                           |                                           
|                                                    |                                            |                                           |                                           
|Total net deposit flows                             | £(1.0)bn                                   | £(0.3)bn                                  | £1.5bn                                    
|                                                    |                                            |                                           |                                           
|Deposit stock                                       | £59.5bn                                    | £60.5bn                                   | £60.8bn                                   
|                                                    |                                            |                                           |                                           
|Of which:                                           |                                            |                                           |                                           
|- Abbey retail                                      | £48.9bn                                    | £49.4bn                                   | £49.8bn                                   
|- Other                                             | £10.6bn                                    | £11.1bn                                   | £11.0bn                                   
|                                                    |                                            |                                           |                                           
|Market share - outstanding household
      deposits | 6.8%                                       | 7.1%                                      | 7.4%                                      
|                                                    |                                            |                                           |                                           
|Banking                                             |                                            |                                           |                                           
|                                                    |                                            |                                           |                                           
|Bank account openings: (000)s                       |                                            |                                           |                                           
|- Abbey retail                                      | 165                                        | 169                                       | 175                                       
|- Other                                             | 26_____________                            | 21_____________                           | 31_____________                           
|                                                    |                                            |                                           |                                           
|                                                    | 191                                        | 190                                       | 206                                       
|Bank account stock: (000)s                          |                                            |                                           |                                           
|- Abbey retail                                      | 3,425                                      | 3,335                                     | 3,245                                     
|- Other                                             | 449_____________                           | 443_____________                          | 440_____________                          
|                                                    |                                            |                                           |                                           
|                                                    | 3,874                                      | 3,778                                     | 3,685                                     
|Bank account liability:                             |                                            |                                           |                                           
|- Abbey retail                                      | £4.5bn                                     | £4.3bn                                    | £4.0bn                                    
|- Other                                             | £3.1bn_____________                        | £3.4bn_____________                       | £3.6bn_____________                       
|                                                    | £7.6bn                                     | £7.7bn                                    | £7.6bn                                    
|Credit card openings: (000)s                        |                                            |                                           |                                           
|- Abbey retail                                      | 79                                         | 85                                        | 130                                       
|- Other                                             | 10_____________                            | 15_____________                           | 21_____________                           
|                                                    | 89                                         | 100                                       | 151                                       
|Credit card stock: (000)s                           |                                            |                                           |                                           
|- Abbey retail                                      | 885                                        | 904                                       | 878                                       
|- Other                                             | 144_____________                           | 141_____________                          | 130_____________                          
|                                                    | 1,029                                      | 1,045                                     | 1,008                                     



|                                                                         | 6 months to30 June
      2004_____________ | 6 months to31 Dec
      2003_____________ | 6 months to30 June
      2003_____________
|------------------------------------------------------------------------ | ------------------------------------------ | ----------------------------------------- | ------------------------------------------
|                                                                         |                                            |                                           |                                           
|Gross unsecured personal loan
      lending:                             |                                            |                                           |                                           
|- Abbey retail                                                           | £0.5bn                                     | £0.5bn                                    | £0.5bn                                    
|- Other                                                                  | £0.6bn                                     | £0.4bn                                    | £0.3bn                                    
|                                                                         | _____________                              | _____________                             | _____________                             
|                                                                         | £1.1bn                                     | £0.9bn                                    | £0.8bn                                    
|Unsecured lending asset:
      (3)                                       |                                            |                                           |                                           
|- Abbey retail                                                           | £1.9bn                                     | £1.9bn                                    | £1.7bn                                    
|- Other                                                                  | £1.3bn                                     | £1.0bn                                    | £0.6bn                                    
|                                                                         | _____________                              | _____________                             | _____________                             
|                                                                         | £3.2bn                                     | £2.9bn                                    | £2.3bn                                    
|                                                                         |                                            |                                           |                                           
|PFS bank account customer base                                           | 4.3m                                       | 4.2m                                      | 4.2m                                      
|                                                                         |                                            |                                           |                                           
|SME account openings (net) (000)s                                        | 17                                         | 18                                        | 20                                        
|SME account stock (000)s                                                 | 146                                        | 129                                       | 111                                       
|SME account liability                                                    | £3.3bn                                     | £3.2bn                                    | £3.5bn                                    
|                                                                         |                                            |                                           |                                           
|Investment and Protection                                                |                                            |                                           |                                           
|                                                                         |                                            |                                           |                                           
|Investment                                                               |                                            |                                           |                                           
|                                                                         |                                            |                                           |                                           
|New business premiums - excluding with profit
      bonds                | £376m                                      | £687m                                     | £694m                                     
|New business premiums - value of with profit
      bonds (4)             | £2m_____________                           | £13m_____________                         | £43m_____________                         
|Total life assurance new business
      premiums                         | £378m                                      | £700m                                     | £737m                                     
|                                                                         |                                            |                                           |                                           
|Inscape and James Hay new
business                                       | £172m                                      | £166m                                     | £183m                                     
|                                                                         | _____________                              | _____________                             | _____________                             
|Total investment new business                                            | £550m                                      | £866m                                     | £920m                                     
|Annualised equivalent - life assurance
      excluding with profit bonds | £58m                                       | £89m                                      | £95m                                      
|Of which:                                                                |                                            |                                           |                                           
|Branch and Direct - annualised
      equivalent                          | £34m                                       | £44m                                      | £56m                                      
|IFA - annualised equivalent                                              | £24m                                       | £45m                                      | £39m                                      
|                                                                         |                                            |                                           |                                           
|Protection                                                               |                                            |                                           |                                           
|                                                                         |                                            |                                           |                                           
|Annualised equivalent                                                    | £56m                                       | £64m                                      | £61m                                      
|Of which:                                                                |                                            |                                           |                                           
|Branch and Direct - annualised
      equivalent                          | £10m                                       | £13m                                      | £15m                                      
|IFA - annualised equivalent                                              | £46m                                       | £51m                                      | £46m                                      
|                                                                         |                                            |                                           |                                           
|                                                                         |                                            |                                           |                                           
|Funds under management - life
      assurance                            | £26bn                                      | £26bn                                     | £27bn                                     





|                                             | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|-------------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                             | _____________                  | _____________                 | _____________                 
|General Insurance                            |                                |                               |                               
|                                             |                                |                               |                               
|New policy sales (000)s                      |                                |                               |                               
|                                             |                                |                               |                               
|Building and Contents                        | 98                             | 104                           | 114                           
|Creditor (5)                                 | 56                             | 61                            | 69                            
|Accidental death and Personal
      Accident | 25                             | 27                            | 19                            
|Travel                                       | 6                              | 21                            | 12                            
|Motor                                        | 6                              | 12                            | 13                            
|                                             | _____________                  | _____________                 | _____________                 
|                                             | 191                            | 225                           | 227                           
|                                             |                                |                               |                               
|Policies in force (000)s                     |                                |                               |                               
|                                             |                                |                               |                               
|Building and Contents                        | 1,199                          | 1,262                         | 1,300                         
|Creditor (5)                                 | 288                            | 295                           | 300                           
|Accidental death and Personal
      Accident | 177                            | 174                           | 161                           
|Travel                                       | 7                              | 8                             | 9                             
|Motor                                        | 58                             | 68                            | 84                            
|                                             | _____________                  | _____________                 | _____________                 
|                                             | 1,729                          | 1,807                         | 1,854                         

(1)Mortgage data has been adjusted for all periods to remove the impact of
the disposed First National business. In addition, the market shares for quoted
2003 periods have been restated following the increase in the Bank of England
definition of the market to include 'Other Specialist
Lenders'.

(2)Deposit
inflows and stock have been defined to include all (both retail household and
non-household) deposits made through the branch network and remote channels in
our retail orientated businesses, which are predominantly UK-based. For market
share purposes only personal deposits have been used to calculate the share of
'Outstanding Household Deposits', in terms of stock, using a market size
estimated from Office of National Statistics data.

(3)Unsecured lending
asset comprises the sum of unsecured personal loans, credit cards (cahoot only)
and overdrafts.

(4)Includes sales of
the Prudential Bond for which only commission income is earned, totalling £2m
(Half 1 2003: £41m; Half 2 2003: £13m). These sales do not have an annualised
equivalent.

(5) Includes Paymentcare and
Unsecured Creditor products.

Mortgages

Gross mortgage lending of £13.0bn (Half
1 2003: £12.9bn) was ahead of the same period last year but lower than the
stronger second half. The gross lending in the first half represented a reduced
market share of 9.0%. With remortgage activity remaining significant in the
market, capital repayments increased to £9.8bn (Half 1 2003: £9.1bn), lower than
in the second half of 2003. Net lending of £3.2bn was 16% lower than the same
period last year (Half 1 2003: £3.8bn), but down more markedly on the second
half, and equating to a market share of 6.1%.

The weaker than anticipated results,
particularly in the second quarter, reflect lower gross lending almost entirely
due to a reduced share of the remortgage market, which is comparatively easier
to regain and typically low profitability. In addition, new business sales and
service levels have suffered from the extent of change being implemented across
all of our sales channels. Notwithstanding this, new business margins have been
widened by c10 bps, and on average by c15 bps across our range of retention
products. Our combined share of the more profitable first time buyer and home
mover segments has remained in the 10 to 12% range.

The service issues, particularly in the
intermediary channel, have now been addressed, in addition to which a fast-track
service for customers with LTV<60% has been introduced following a review of
our self-certification policy earlier in the year. We are now complementing our
"deal for life" and "reward mortgage" offering with other selective best buy
products. In recent months, our extensive customer tracking survey has shown
customer willingness to consider Abbey as their mortgage provider improving,
with our rank versus our direct peers improving from 4th to joint 1st.

We are targeting an improved gross
lending share during the second half, although the second quarter impact will
continue to adversely impact completions in the third quarter, with improvements
hopefully showing through thereafter.

Credit quality of the book and new
lending continues to remain excellent with very limited exposure to certain
segments of the market such as buy to let, sub prime and high loan-to-value.

Retail deposits

Total retail deposit outflows of £1.0bn
compared to an inflow of £1.5bn in the first half of 2003.

The first quarter outflow of £1.2bn has
successfully been reversed, with an inflow of £0.2bn in the second quarter. The
first quarter result reflected elements of business disruption together with a
lower funding requirement following the repayment of over £50bn of wholesale
funding in relation to the PBU over the last 18 months, significantly improving
the funding mix and maturity profile. Within the Abbey brand, outflows were
largely attributable to remote accounts, typically rate led propositions.

The improvement in the second quarter
reflects actions taken, including product improvements, marketing campaigns and
changes to pricing. We have shifted our focus to profitable branch based
accounts such as flexible saver, and in the second quarter inflows into the new
range offset attrition from the low rate "back book".

We are aiming to build on the second
quarter performance and are targeting net inflows for the remainder of the year.

Banking

Bank account openings totalled 191,000
(Half 1 2003 : 206,000), with a total stock of accounts just short of 3.9m.
Abbey-branded openings of 165,000 were slightly down on Half 1 2003, with a
higher proportion of youth segment openings in part offsetting the fall in adult
account openings attributable to reduced direct promotional activity in 2004.
Despite this, Abbey-branded in-credit balances were up 5% at £4.5bn (Half 2
December 2003: £4.3bn).

Unsecured lending balances, which
incorporate credit card (cahoot only), unsecured personal loans and overdrafts,
increased by 10% in the period compared to the second half of 2003 with strong
gross lending in both cahoot and the Abbey brand, up 39% in total on the same
period last year. New lending through the Abbey branch network was trebled in
the period supported by the "managing your borrowing campaign", offset by
repayment profiles resulting in a stable net asset balance.

Credit card openings of 89,000 were
down 41% on the same period last year, and 11% on the second half of 2003
reflecting intense competition in this market.

Investment and Protection

Total life assurance investment
annualised premium equivalent (APE) sales of £58m were down 39% (Half 1 2003:
£95m).

The new business flows continue to be
impacted by our declaration of a zero bonus for with profit policyholders in
2004. In addition, the process of restructuring and retraining our sales force -
both branch-based advisors and intermediary sales forces - has continued to
impact sales capacity, and therefore the customer experience.

With completion of the retraining
programme, and resolution of discussions with the FSA relating to policyholder
reasonable expectations and capital structure of the with profit businesses, we
are now in a better position from which to grow with first signs of this
expected later in the year, but increasing in 2005.

APE sales of protection products were
down at £56m (Half 1 2003: £61m), with margins materially improved, and
representing an estimated market share of 26% through the intermediary channel
in the first quarter.

General Insurance

General Insurance policy sales of
191,000 were down 16% on Half 1 2003. The decline in Household and Secured
Creditor sales has been because of the launch of new systems and processes,
which have taken time to embed during a period of major change for the business.
This has resulted in lower conversion of cross-sale opportunities but
indications are that these changes are starting to have a positive impact across
all distribution channels. In addition, household sales have been written at
increased margins in part offsetting the reduction in volume.

In addition, we have exited the travel
market, reducing policy volumes by 6,000 year on year.

1.5: Customer information

The following measures are intended to
give helpful information on key customer metrics for the PFS business. The data
for 2004 has been expanded to include all personal customers, which consists of
Abbey retail, Scottish Provident, Scottish Mutual Assurance, cahoot, Inscape,
Cater Allen and James Hay.

|   |                                                    | At30
      June2004_____________ | 
|-- | -------------------------------------------------- | -------------------------------- | 
|   | Customer activity                                  |                                  | 
|   |                                                    |                                  | 
|1. | Total customer numbers                             | 17.8m                            | 
|2. | Active customers (1)                               | 13.2m                            | 
|3. | Customers with more than one product
      holding | 6.0m                             | 
|   |                                                    |                                  | 
|   | Customer value                                     |                                  | 
|   |                                                    |                                  | 
|1. | Trading revenues per active customer
      (2)     | £171                             | 
|2. | Trading costs per active customer
      (3)        | £113_____________                | 

Based on Abbey-branded products only,
and consistent with the information provided in the 2003 Full Year Financial
Results:

|   |                                                                        | At30
      June2004_____________ | At31
      December2003_____________
|-- | ---------------------------------------------------------------------- | -------------------------------- | ------------------------------------
|   | Customer activity                                                      |                                  |                                     
|   |                                                                        |                                  |                                     
|1. | Total customer numbers                                                 | 15.8m                            | 15.7m                               
|2. | Active customers (1)                                                   | 11.1m                            | 11.2m                               
|3. | Customers with more than one product
      holding                     | 5.4m                             | 5.4m                                
|   |                                                                        |                                  |                                     
|   | Customer value                                                         |                                  |                                     
|   |                                                                        |                                  |                                     
|1. | Trading revenues per active customer
      (2)                         | £165                             | £182                                
|2. | Trading costs per active customer
      (3)                            | £109                             | £108                                
|   |                                                                        |                                  |                                     
|   | Customer satisfaction                                                  |                                  |                                     
|   |                                                                        |                                  |                                     
|1. | Abbey Customer satisfaction
      (4)
      Average of Key Competitors | 5.52
      5.48                  | 5.65
      5.55                     

Customer volumes have remained largely
flat over the first half of 2004. Abbey's customer satisfaction has maintained
its position slightly ahead of the average for its five key competitors.

Notes

(1) The definitions of
"active" depends on the nature of the product as follows:

> Mortgages, loans, investment
and insurance policies, which are open;

> Savings accounts - balance
of over £100 or transaction in last six months;

> Abbey accounts and credit
cards - balance of more than £50 or transaction in the last three months; and

> cahoot account balance
>£0

(2) Trading revenues (net of
credit costs) divided by active customers.

(3)Trading costs (including
a proportion of Group Infrastructure costs, and grossed up for relevant expenses
accounted for as part of embedded value) divided by active customers.

(4) Utilising Abbey's
monthly customer tracking survey, undertaken by independent consultants. This
represents the three month average mean score measured on a 7-point scale where
1 is "completely dissatisfied" and 7 is "completely satisfied", key competitors
are Halifax, LTSB, HSBC, Natwest, Barclays. In the most recent quarter, Abbey's
rating has started to improve relative to the peer group.

2. ANALYSIS OF KEY PERSONAL FINANCIAL SERVICES (PFS)
DRIVERS

2.1: PFS Total income

2.1.1: Trading income by
business

|                                                  | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|------------------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                                  | £ m_____________               | £ m_____________              | £
  m_____________            
|Abbey retail                                      | 909                            | 989                           | 1,020                         
|Other                                             | 66                             | 72                            | 66                            
|                                                  | _____________                  | _____________                 | _____________                 
|Banking and Savings                               | 975                            | 1,061                         | 1,086                         
|                                                  |                                |                               |                               
|Abbey National Life                               | 45                             | 40                            | 49                            
|Scottish Mutual                                   | 28                             | 40                            | 19                            
|Scottish Provident                                | 58                             | 68                            | 46                            
|Other                                             | 21_____________                | 16_____________               | 19_____________               
|                                                  |                                |                               |                               
|Investment and Protection                         | 152                            | 164                           | 133                           
|                                                  |                                |                               |                               
|General Insurance                                 | 56                             | 65                            | 56                            
|                                                  |                                |                               |                               
|Abbey Financial Markets                           | 128                            | 91                            | 158                           
|                                                  |                                |                               |                               
|Group Infrastructure                              | 8                              | (7)                           | (18)                          
|                                                  | _____________                  | _____________                 | _____________                 
|PFS trading income                                | 1,319_____________             | 1,374_____________            | 1,415_____________            
|                                                  |                                |                               |                               
|Adjust for: (1)                                   |                                |                               |                               
|                                                  |                                |                               |                               
|- Embedded value charges and rebasing
      (2)   | (24)                           | (341)                         | (22)                          
|- Re-organisation expenses - life
      assurance | (35)                           | (11)                          | (5)                           
|                                                  | _____________                  | _____________                 | _____________                 
|PFS total income                                  | 1,260_____________             | 1,022_____________            | 1,388_____________            

(1)A
breakdown of the non-trading items is provided in Section 2.4.

(2) The £22m embedded value
charges and rebasing in Half 1 2003 does not include £80m relating to the impact
of tax law changes on the Scottish Provident acquisition structure, which are
reported as provisions for bad and doubtful debts for statutory purposes.

6 months to 30 June 2004 versus 6
months to 30 June 2003:

Banking and Savings trading income was
£111m lower at £975m (Half 1 2003: £1,086m), largely attributable to the
reduction in the PFS Banking spread, partly offset by asset growth.

Investment and Protection trading
income of £152m up on the same period last year (Half 1 2003: £133m). The
contribution from new business was up reflecting improvements in protection
margins, with experience variances and assumption changes, though unfavourable
at £10m, improved on the prior year (Half 1 2003: unfavourable £32m).

In General Insurance trading income was
flat at £56m (Half 1 2003: £56m), with increases in margins offset by reduced
new policy sales and lower renewals business.

Abbey Financial Markets trading income
of £128m was £30m lower (Half 1 2003: £158m), largely due to reduced business
opportunities within the narrower PFS mandate, and less favourable market
conditions.

Group Infrastructure trading income of
£8m (Half 1 2003: £(18)m) rose by £26m due to interest rate hedge rebalancing
and allocation of more interest cost to the business areas.



6 months to 30 June 2004 versus 6
months to 31 December 2003:

Banking and Savings trading income was
£86m lower at £975m (Half 2 2003 £1,061m). This reflects the reduction in spread
as a result of a further reduction in the free-to-go standard variable rate
mortgage asset, combined with lower product redemption charges of £65m (Half 2
2003: £95m).

Investment and protection trading
income fell by 7% to £152m (Half 2 2003: £164m) reflecting a decrease in
expected return following a reduction in the risk discount rate and embedded
value charges and rebasing in 2003. New business contribution was lower, despite
an improvement in margins, reflecting the drop in investment business volumes.
These decreases were partly offset by a £16m improvement in experience variances
and assumptions changes.

In General Insurance trading income
fell 14% to £56m (Half 2 2003 £65m), reflecting lower new policy sales as a
result of weaker mortgage volumes, combined with the withdrawal from the travel
market.

Abbey Financial Markets trading income
of £128m was £37m higher (Half 2 2003 £91m), reflecting improved trading flows
in the first half of 2004, specifically in equity and credit derivatives.

Group Infrastructure trading income of
£8m (Half 2 2003 £(7)m ) rose by £15m due to interest rate hedge rebalancing and
allocation of more interest cost to the business areas.



2.1.2: Net interest income and
spread

Net interest income

|                          | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                          | £ m_____________               | £ m_____________              | £
  m_____________            
|                          |                                |                               |                               
|Banking and Savings       | 782                            | 854                           | 866                           
|Investment and Protection | 48                             | 40                            | 43                            
|General Insurance         | (1)                            | (2)                           | (3)                           
|Abbey Financial Markets   | 15                             | 11                            | 15                            
|Group Infrastructure      | (46)_____________              | (54)_____________             | (61)_____________             
|PFS net interest income   | 798_____________               | 849_____________              | 860_____________              

Excluding Banking and Savings (analysed
below), net interest income increased by £22m compared to Half 1 2003 and was up
by £21m on Half 2 2003. As a result of the change in accounting presentation
described in Section 1.1. The comparatives for net interest income in Abbey
Financial Markets for the 6 months to 31 December 2003 and six months to 30 June
2003 have been reduced by £20m and £66m respectively.

PFS Banking spread

|                                                        | 6 months to
      30 June
      2004_____________ | 6 months to
      31 Dec
      2003_____________ | 6 months to
      30 June
      2003_____________
|------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------ | -------------------------------------------------
|Banking and Savings net interest income (£ m)
      (1) | 782                                               | 854                                              | 866                                              
|                                                        |                                                   |                                                  |                                                  
|PFS Banking spread (2)                                  | 1.58%                                             | 1.75%                                            | 1.86%                                            
|PFS average asset spread
      (3)                      | 0.79%                                             | 1.06%                                            | 1.01%                                            
|PFS average liability spread
      (3)                  | 0.79%                                             | 0.69%                                            | 0.85%                                            
|                                                        |                                                   |                                                  |                                                  
|PFS Banking margin (4)                                  | 1.70%_____________                                | 1.92%_____________                               | 2.08%_____________                               

(1)Banking and Savings net
interest income includes income associated with the Housing Association asset,
however the PFS Banking spread excludes Housing Association.

(2)Average
spread is defined as interest received (mortgage, unsecured personal loans and
overdraft interest less suspended interest) over average interest earning
assets, less interest payable (savings, in-credit bank accounts) over interest
bearing liabilities (including an element of wholesale
funding).

(3)Asset
and liability spreads are calculated using the third party interest payments
(such as mortgage interest receivable or savings interest payable) net of
relevant hedging compared to an internal transfer price of average base rate
plus 15 bps.

(4)Average
margin is defined as net interest income (less suspended interest but including
a recapitalisation adjustment that equates to earnings on regulatory capital)
divided by the average interest earning assets.

The PFS Banking spread includes all the
PFS lending and savings operations. The largest component part was previously
reported as Abbey retail spread, which was 1.33% in the first half (Half 1 2003:
1.61%; Half 2 2003: 1.50%) but it also includes the impact of Abbey-branded
unsecured loans, Abbey Business, cahoot, Cater Allen Private Bank and Abbey
International.

The PFS Banking spread for the first
half was 1.58%, 17 basis points lower than the second half of last year with
pressure on the asset spread being entirely responsible for the decline. Strong
gross lending over the last 18 months and continued redemption activity has
resulted in a change in the mix of the mortgage book, including an overall
reduction in the free-to-go SVR asset. In addition, lower product redemption
charges (PRCs) have contributed circa 11bps of the decline.

Relative to the peer group a 35 bps
differential in the pricing of our SVR asset was closed over a 12 month period
to November 2003, and explains in part the more marked decline in spread
reported by Abbey.

The liability spread improved in the
first half of the year to 0.79% (Half 2 2003: 0.69%), with the benefit of rising
base interest rates more than offsetting the dilution impact of the increased
wholesale funding required.

As previously flagged, the PFS Banking
spread is expected to decline further in the second half, but the rate of
decline will moderate substantially. The slowing decline reflects the benefits
from rising base rates, the positive impact of improved new business margins,
and the stabilisation of PRC income.

The differential between spread and
margin has narrowed, as a result of lower earnings on the Group's capital as a
result of maturing interest rate hedges, and an increased allocation of the
Group's subordinated debt interest cost.



The main drivers of the fall in the PFS
Banking spread are detailed below:

|                                                                               | Half 1 2004       
|------------------------------------------------------------------------------ | ------------------
|                                                                               | versus Half 2 2003
|                                                                               | bps_____________  
|Asset spread:                                                                  |                   
|Reduced product redemption
charges                                             | (11)              
|Mix impact (new business growth, Standard
      Variable Rate asset reduction) | (14)              
|Unsecured asset margins reduced                                                | (2)_____________  
|Total asset spread movement                                                    | (27)              
|                                                                               |                   
|Liability spread:                                                              |                   
|Rate widening / easing of margin
      compression                             | 14                
|Wholesale funding dilution impact                                              | (4)_____________  
|Total liability spread movement                                                | 10                
|                                                                               | _____________     
|Total PFS Banking spread movement                                              | (17)_____________ 

6 months to 30 June 2004 versus 6
months to 30 June 2003:

Banking and Savings net interest income
of £782m was down 10% (Half 1 2003: £866m), in part reflecting a sharp reduction
in product redemption charges to £65m (Half 1 2003: £93m), with a higher
proportion of redemptions being penalty free, as well as a further reduction in
average penalties per customer.

The absolute fall in the level of SVR
asset, combined with a narrowing of the SVR margin to realign pricing to the
peer group, has also had an adverse impact. Back book SVR asset of £13bn is £2bn
lower than the same point last year, in part because an increased proportion of
mortgage incentive period maturities are currently reverting to base-rate linked
margins. New business written since the latter part of 2002 typically reverts to
standard variable rate after the incentive period, and will therefore start to
replenish the SVR asset at the end of the incentive period.

Earnings from deposits in the first six
months were relatively stable, benefiting from reduced compression as base rates
have increased, and with some limited margin widening effected following the
most recent Bank of England rate changes.

6 months to 30 June 2004 versus 6
months to 31 December 2003:

The fall in net interest income in the
first half of 2004 was more marked than the relative stability through 2003.
This reflects the sharp decline in product redemption charges discussed above,
combined with the full period impact of the reduction in the SVR asset. The
negative impact of higher Libor versus base rates had an offset in the first
half of 2004 through positive interest rate hedge income.

Mortgage asset mix

|                              | 6 months to
      30 June 2004 | 6 months to
      31 December 2003 | 6 months to
      30 June 2003
|----------------------------- | ------------------------------ | ---------------------------------- | ------------------------------
|                              | £ bn_____________              | £ bn_____________                  | £
  bn_____________           
|Incentive period              |                                |                                    |                               
|Standard Variable Rate linked | 16                             | 18                                 | 18                            
|Base-rate linked              | 31                             | 27                                 | 26                            
|Fixed                         | 17                             | 16                                 | 14                            
|Tied in                       | 1                              | 1                                  | 1                             
|                              | _____________                  | _____________                      | _____________                 
|                              | 65                             | 62                                 | 59                            
|Free-to-go                    |                                |                                    |                               
|SVR linked                    | 13                             | 15                                 | 15                            
|Base rate linked              | 3                              | 2                                  | -                             
|Flexible                      | 6                              | 5                                  | 4                             
|Other                         | 1                              | 1                                  | 1                             
|                              | _____________                  | _____________                      | _____________                 
|                              | 23                             | 23                                 | 20                            
|                              | _____________                  | _____________                      | _____________                 
|Total mortgage asset(1)       | 88_____________                | 85_____________                    | 79_____________               

(1)Quoted
mortgage asset excludes £3.1bn (December 2003: £3.1bn) of Housing Association
lending, consistent with the methodology used to calculate the PFS Banking
spread. In addition, the split of the asset has been restated in prior periods
to correct misclassifications, increasing the amount of fixed rate asset, offset
by reducing the SVR linked and Base rate linked incentive period values.



At 30 June 2004, free to go SVR of
£13bn represents 15% of the total asset. The absolute balance has reduced over
the last 18 months, but the reduction has accelerated since the latter part of
last year, as from September 2003 an increased proportion of incentive based
customer loans started to mature onto base rate linked reversion products. This
latter segment is broadly restricted to lending undertaken between April 2001
and August 2002.

£31bn of the incentive period mortgage
asset is now tied in to products where rates are linked directly to base rates.
Of the base rate linked asset still in the incentive period, approximately 70%
reverts to SVR after the introductory period, a percentage that will increase in
future periods given the structuring of new product lending since the second
half of 2002.

Liability balance mix

|                                 | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|-------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                 | £ bn_____________              | £ bn_____________             | £
  bn_____________           
|Banking                          | 4.5                            | 4.3                           | 4.0                           
|Remote                           | 11.1                           | 12.2                          | 12.7                          
|Fixed term and tax free savings  | 14.9                           | 14.5                          | 14.9                          
|Branch-based deposits            | 14.9                           | 15.3                          | 15.3                          
|                                 | _____________                  | _____________                 | _____________                 
|Total Abbey-branded liability(1) | 45.4                           | 46.3                          | 46.9                          
|                                 |                                |                               |                               
|Other brands (1)                 | 14.1                           | 14.2                          | 13.9                          
|                                 | _____________                  | _____________                 | _____________                 
|Total PFS liability              | 59.5_____________              | 60.5_____________             | 60.8_____________             

(1) The split is different
to that in Section 1.4 due to the treatment of Abbey Business.

Overall, branch-based deposits have
declined to £14.9bn. Changes in mix reflect attrition from older branch-based
accounts, partly offset by positive flows into new lower but still positive
margin, branch-based offerings, such as Flexible Saver and Branch Saver.

Remote savings balances, including
internet and postal, have reduced to £11.1bn (December 2003: £12.2bn) reflecting
falls in e-saver, Postal and Direct Saver. Fixed term and tax-free savings
balances increased, with ISA inflows offsetting bond and TESSA maturities.

Modest outflows from balances outside
Abbey retail relate to primarily Cater Allen and Abbey International.



2.1.3: Trading non-interest income

|                                             | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|-------------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                             | £ m_____________               | £ m_____________              | £
  m_____________            
|Mortgages:                                   |                                |                               |                               
|Administration, survey and legal
    fees    | 33                             | 37                            | 36                            
|Application and booking fees                 | 16                             | 25                            | 18                            
|Fee income on high loan-to-value
      loans | 23                             | 28                            | 27                            
|Introducer fees payable                      | (16)                           | (11)                          | (9)                           
|Other                                        | 8                              | 3                             | 9                             
|                                             | _____________                  | _____________                 | _____________                 
|                                             | 64                             | 82                            | 81                            
|                                             |                                |                               |                               
|Savings                                      | 17                             | 21                            | 26                            
|                                             |                                |                               |                               
|Banking:                                     |                                |                               |                               
|Fees and commissions receivable              | 129                            | 121                           | 125                           
|Fees and commissions payable                 | (20)                           | (23)                          | (15)                          
|Other                                        | 3                              | 6                             | 3                             
|                                             | _____________                  | _____________                 | _____________                 
|                                             | 112                            | 104                           | 113                           
|                                             | _____________                  | _____________                 | _____________                 
|Banking and Savings                          | 193                            | 207                           | 220                           
|                                             |                                |                               |                               
|Investment and Protection                    | 104                            | 124                           | 90                            
|                                             |                                |                               |                               
|Building and contents                        | 44                             | 50                            | 43                            
|Motor                                        | 1                              | 4                             | 2                             
|Creditor                                     | 12                             | 12                            | 12                            
|Other                                        | -                              | 1                             | 2                             
|                                             | _____________                  | _____________                 | _____________                 
|General Insurance                            | 57                             | 67                            | 59                            
|                                             |                                |                               |                               
|Abbey Financial Markets                      | 113                            | 80                            | 143                           
|                                             |                                |                               |                               
|Group Infrastructure                         | 54                             | 47                            | 43                            
|                                             | _____________                  | _____________                 | _____________                 
|PFS trading non-interest
      income(1)     | 521_____________               | 525_____________              | 555_____________              

(1) A reconciliation to
statutory non-interest income is contained in Section 2.4.4.

6 months to 30 June 2004 versus 6 months to 30 June
2003:

Total mortgage non-interest income has
decreased by £17m to £64m (Half 1 2003: £81m), driven by a combination of lower
levels of high loan-to-value lending and higher fees paid to introducers
reflecting the level of introduced lending.

Savings non-interest income of £17m
(Half 1 2003: £26m) largely relates to commissions on sale of Abbey National
Life investment products, which were down on last year.

Banking related non-interest income was
broadly flat at £112m (Half 1 2003: £113m). Improved collections of fees and a
reduction in defaults have been offset by more competitive fee pricing.

Investment and Protection trading
non-interest income is analysed in Section 2.1.4.

General insurance non-interest income
of £57m (Half 1 2003: £59m) was broadly in line with the equivalent period in
2003, with lower new business volumes, renewals, and an exit from the travel
business largely offset by the impact of Half 2 2003 margin increases.

Abbey Financial Markets non-interest
income decreased 21% to £113m (Half 1 2003 £143m), largely due to reduced
business opportunities within the narrower PFS mandate, and less favourable
market conditions. In addition as a result of the change of accounting
presentation described in Section 1.1 the comparatives for trading non-interest
income have been increased for the six months to 30 June 2003 by £66m.

In Group Infrastructure, non-interest
income of £54m (Half 1 2003: £43m) increased by £11m, reflecting higher interest
charges allocated to the life assurance companies in line with the group's
gearing ratio. For life companies this is accounted for as non-interest income.

6 months to 30 June 2004 versus 6 months to 31
December 2003:

Total mortgage non-interest income fell
by £18m to £64m (Half 2 2003: £82m) reflecting the lower levels of new mortgage
business written compared to the strong second half of 2003, including a lower
proportion of high loan-to-value business and a higher proportion of introduced
business.

Savings commissions fell in line with
the lower new business levels written in the life assurance business, impacted
by the continued negative news flow including zero bonus declarations.

Banking related non-interest income was
£8m higher at £112m (Half 2 2003 £104m) mainly due to an increase in collections
of fees and a reduction in defaults.

Investment and Protection trading
non-interest income is analysed in Section 2.1.4.

General Insurance trading income fell
£10m to £57m (Half 2 2003 £67m), largely due to a fall in new business, impacted
by declining mortgage business and the impact of exiting the travel business.

Abbey Financial Markets non-interest
income increased 41% to £113m (Half 2 2003: £80m), reflecting increased trading
flow particularly in equity derivatives. In addition, as a result of the change
in accounting presentation described in Section 1.1 the comparatives for trading
non-interest income have been increased for the six months to 31 December 2003
by £20m.

In Group Infrastructure, non-interest
income of £54m (Half 2 2003: £47m) increased by £7m, reflecting higher interest
charges allocated to the life assurance companies.



2.1.4: Life assurance income

|                                                          | 6 months to 30 June
    2004
|--------------------------------------------------------- | ----------------------------
|                                                          | AN                          
|                                                          | Life                        
|                                                          | £ m_____________            
|                                                          |                             
|New business contribution to embedded value
      (EV)    | 8                           
|                                                          |                             
|Contribution from existing business to
      EV:          |                             
|- expected return                                         | 19                          
|- experience variances and changes in
      assumptions   | 3                           
|                                                          | _____________               
|Increase in value of long-term assurance
      businesses | 30                          
|                                                          |                             
|Non-EV earnings:                                          |                             
|ANUTM and ANPIM fees
    (1)                              | 19                          
|Other income and operating
    expenses                   | (10)                        
|                                                          | _____________               
|Trading profit before tax                                 | 39                          
|                                                          |                             
|Less: Embedded value charges and
      rebasing           | (7)                         
|Less: Re-organisation expenses                            | (7)                         
|                                                          | _____________               
|Profit / (loss) before tax                                | 25                          
|                                                          | _____________               
|New business margin (%)
      (2)                         | 47%                         
|                                                          |                             
|Trading expenses:                                         |                             
|                                                          |                             
|Operating expenses included in EV                         | 12                          
|Statutory operating expenses                              | 6                           
|                                                          | _____________               
|Total trading expenses (including
      EV)               | 18_____________             

|                                                          | 6 months to 31 December
      2003
|--------------------------------------------------------- | ----------------------------------
|                                                          | AN                                
|                                                          | Life                              
|                                                          | £ m_____________                  
|New business contribution to EV                           | 8                                 
|                                                          |                                   
|Contribution from existing business to
      EV:          |                                   
|- expected return                                         | 22                                
|- experience variances and changes in
      assumptions   | (8)_____________                  
|                                                          |                                   
|Increase in value of long-term assurance
      businesses | 22                                
|                                                          |                                   
|Non-EV earnings:                                          |                                   
|ANUTM and ANPIM fees
    (1)                              | 23                                
|Other income and operating
    expenses                   | (9)                               
|                                                          | _____________                     
|Trading profit before tax                                 | 36                                
|                                                          |                                   
|Less: Embedded value charges and
      rebasing           | 22                                
|Less: Re-organisation expenses                            | -                                 
|                                                          | _____________                     
|Profit / (loss) before tax                                | 58                                
|                                                          | _____________                     
|New business margin (%)
      (2)                         | 36%                               
|                                                          |                                   
|Trading expenses:                                         |                                   
|                                                          |                                   
|Operating expenses included in embedded
      value       | 12                                
|Statutory operating expenses                              | 5                                 
|                                                          | _____________                     
|Total trading expenses (including
      EV)               | 17_____________                   



|                                                          | 6 months to 30 June
    2003
|--------------------------------------------------------- | ----------------------------
|                                                          | AN                          
|                                                          | Life                        
|                                                          | £ m_____________            
|                                                          |                             
|New business contribution to embedded value
      (EV)    | 13                          
|                                                          |                             
|Contribution from existing business to
      EV:          |                             
|- expected return                                         | 21                          
|- experience variances and changes in
      assumptions   | (6)                         
|                                                          | _____________               
|Increase in value of long-term assurance
      businesses | 28                          
|                                                          |                             
|Non-EV earnings:                                          |                             
|ANUTM and ANPIM fees
    (1)                              | 20                          
|Other income and operating
    expenses                   | (5)                         
|                                                          |                             
|Trading profit before tax                                 | 43                          
|                                                          |                             
|Less: Embedded value charges and
      rebasing           | 4                           
|Less: Re-organisation expenses                            | -                           
|                                                          | _____________               
|Profit / (loss) before tax                                | 47                          
|                                                          | _____________               
|New business margin (%)
      (2)                         | 56%                         
|                                                          |                             
|Trading expenses:                                         |                             
|                                                          |                             
|Operating expenses included in embedded
      value       | 12                          
|Statutory operating expenses                              | 5                           
|                                                          | _____________               
|Total trading expenses (including
      EV)               | 17_____________             

(1) ANUTM represents Abbey
National Unit Trust Managers, while ANPIM represents Abbey National PEP and ISA
Managers. The fee income disclosed is reported as non-interest income for
statutory purposes.

(2)New
business margin is calculated as new business contribution to EV, divided by
related annualised equivalent premiums for Life contracts.

New business contribution to embedded
value

6 months to 30 June 2004 versus 6
months to 30 June 2003:

New business contribution to embedded
value has increased 47% from £17m to £25m. In Abbey National Life the decrease
reflects a combination of a reduction in new business sales and a small fall in
the profitability of branch based protection products. In Scottish Mutual, the
fall is the result of reduced new business volumes and changes in the sales mix,
in addition to a significant drop in the profitability of the Pegasus protection
products. Scottish Provident experienced a significant increase in new business
contribution since the first half of 2003 when the contribution was impacted by
margin pressure following changes in reassurance rates.

6 months to 30 June 2004 versus 6
months to 31 December 2003:

New business contribution to embedded
value fell by £3m compared to the second half of last year driven by Scottish
Mutual which has been impacted by reduced volumes, changes in the product mix of
sales and drop in profitability of the Pegasus protection products.

Expected return

6 months to 30 June 2004 versus 6
months to 30 June 2003:

The expected return in the first half
of 2004 was in line with that of the first half of 2003. The Abbey National Life
decrease was primarily driven by the reduction in discount rate, while in
Scottish Mutual and Scottish Provident this impact was more than offset by
changes to assumptions and the unwind of new business recognised in 2003.



6 months to 30 June 2004 versus 6
months to 31 December 2003:

The expected return was down 19% to
£96m compared to the second half of 2003. This was largely attributable to the
effects of changing the risk discount rate from 8.5% to 7.5% at the end of
December 2003, when we moved to an active embedded value management basis and
the impact of the 2003 embedded value charges and rebasing. In Scottish Mutual
the £23m fall was mainly due to the reduction in risk discount rate, with a
lower expected cash return on retained surpluses included in 2004. Expected
return in Scottish Provident was higher due to the increase in policies in force
resulting from strong new business volumes during 2003.

ANUTM and ANPIM fees

ANUTM and ANPIM non-interest income of
£19m were lower than both Half 1 and Half 2 2003 of £20m and £23m respectively.
The fall has been driven by a reduction in new business.

Experience variances and changes in
assumptions

Experience variances and assumption
changes of £(10)m (Half 1 2003: £(32)m; Half 2 2003: £(26)m) are analysed as
follows:

|                                                            | 6 months to 30 June
    2004
|----------------------------------------------------------- | ----------------------------
|                                                            | ANL                         
|                                                            | £ m                         
|                                                            | _____________               
|Mortality and morbidity
experience                          | 2                           
|Lapse experience                                            | (1)                         
|Expenses (over) / under run                                 | (1)                         
|Taxation adjustment                                         | (4)                         
|Other experience variance                                   | (3)                         
|Assumption changes and other                                | 10                          
|                                                            | _____________               
|Total experience variances and changes in
      assumptions | 3_____________              



|                                                            | 6 months to 31 December
      2003
|----------------------------------------------------------- | ----------------------------------
|                                                            | ANL                               
|                                                            | £ m                               
|                                                            | _____________                     
|Mortality and morbidity
experience                          | 3                                 
|Lapse experience                                            | (3)                               
|Expenses (over) / under run                                 | (1)                               
|Taxation adjustment                                         | (4)                               
|Other experience variance                                   | (14)                              
|Assumption changes and other                                | 11                                
|                                                            |                                   
|Total experience variances and changes in
      assumptions | (8)                               



|                                                            | 6 months to 30 June
    2003
|----------------------------------------------------------- | ----------------------------
|                                                            | ANL                         
|                                                            | £ m                         
|                                                            | _____________               
|Mortality and morbidity
experience                          | 5                           
|Lapse experience                                            | (4)                         
|Expenses (over) / under run                                 | -                           
|Taxation adjustment                                         | (6)                         
|Other experience variance                                   | 8                           
|Assumption changes and other                                | (9)                         
|                                                            | _____________               
|Total experience variances and changes in
      assumptions | (6)_____________            

Mortality and morbidity experience
variances and assumption changes remained in line overall. The change in
Scottish Mutual compared to Half 2 2003 was due to an assumption change in
Pegasus morbidity assumptions at the end of 2003. In Scottish Provident
mortality and morbidity experience was significantly lower following an
amendment to the assumptions in December 2003.



Lapse experience have improved
significantly from Half 2 2003 levels. Both Scottish Mutual and Scottish
Provident experienced a large number of surrenders of unitised with profit
contracts in 2003 following the announcement of the cut in bonus rates. Lapse
rates in the with profits funds have remained high during the first half of 2004
reflecting policyholder uncertainty over future payouts during the review into
the fund positions which has now been concluded.

The trading expenses under-run in the
second half of 2003 has continued into the first half of 2004, particularly in
Scottish Provident where strong new business volumes coupled with higher initial
expense loadings have led to a cost under-run of £12m. The life businesses are
currently undergoing significant restructuring and organisational changes in
order to drive this under-run position further.

The taxation adjustment in 2004
principally represents the movement in the deferred tax asset on prior year
available losses carried forward. The tax experience adjustments in Scottish
Mutual and Abbey National Life largely relate to one-off differences between the
actual tax payable over the period and that assumed as part of the expected
return calculation. In Scottish Provident the variance of £15m represents the
movement in deferred tax asset driven by anticipated future tax relief on prior
year losses.

Other experience variances cover a
number of smaller items which are aggregated for reporting purposes. These are
mainly the effect of differences from the expected level in terms of revenue
impacts, such as commissions. These have produced a charge in 2004 rather than
the gain recognised in the first half of 2003.

Assumption changes and other comprises
the impact of changing non economic assumptions such as lapse rates and
annuitant mortality along with other items that are not classified as new
business, expected return or experience variances. This includes such items as
reductions in reassurance default reserves, maturing pensions business electing
to use guaranteed annuity options and the impact of reassuring the immediate
annuity business of Scottish Provident.

Embedded value charges and rebasing

Embedded value charges and rebasing
were £(24)m (Half 1 2003: £(102)m; Half 2 2003 £(341)m).

The embedded value charges and rebasing
are disclosed in detail in Section 2.4.1 in three main categories. Firstly the
impact of investment markets over the period differing from expectations on
revenue profits. This includes actual less expected interest on surpluses
retained in the funds and the difference between actual and expected management
charges on unit funds over the period. Secondly, the impact of closing market
levels being different than expected on the future profits item. This includes
items such as changes to the active economic basis, changes in asset mix and the
impact of higher or lower unit values on the stream of future management
charges. Lastly, other non-trading items are included here such as changes in
provisioning and impacts of stabilising the with profits funds.

Assets under management

The table below shows the total funds
under management by company (including related PBU entities), and split by type
of business:

|                         | At 30 June 2004
|------------------------ | ---------------
|                         | ANL            
|                         | £ bn           
|                         | _____________  
|Closed with profit funds | -              
|Ongoing businesses       | 4              
|                         | _____________  
|Total(1)                 | 4_____________ 

(1)Total
funds under management are split £25bn in Personal Financial Services, and £2bn
managed on behalf of entities within the Portfolio Business Unit.

Note: The funds under management
disclosed in the table above have been largely outsourced in 2004.

2.2: PFS Operating expenses

2.2.1: Trading expenses by business

|                                        | 6 months to
      30 June 2004 | 6 months to
      31 December 2003 | 6 months to
      30 June 2003
|--------------------------------------- | ------------------------------ | ---------------------------------- | ------------------------------
|                                        | £ m                            | £ m                                | £ m                           
|                                        | _____________                  | _____________                      | _____________                 
|Abbey retail                            | 515                            | 547                                | 494                           
|cahoot                                  | 21                             | 21                                 | 22                            
|Cater Allen and Abbey
    International | 18                             | 19                                 | 29                            
|                                        | _____________                  | _____________                      | _____________                 
|Banking and Savings                     | 554                            | 587                                | 545                           
|                                        |                                |                                    |                               
|Abbey National Life
(1)                 | 6                              | 5                                  | 5                             
|Scottish Mutual (1)                     | 6                              | 8                                  | 1                             
|Scottish Provident (1)                  | -                              | -                                  | 1                             
|Other                                   | 25                             | 19                                 | 19                            
|                                        | _____________                  | _____________                      | _____________                 
|Investment and Protection               | 37                             | 32                                 | 26                            
|                                        |                                |                                    |                               
|General Insurance                       | 20                             | 21                                 | 27                            
|                                        |                                |                                    |                               
|Abbey Financial Markets                 | 53                             | 49                                 | 60                            
|                                        |                                |                                    |                               
|Group Infrastructure                    | 119                            | 128                                | 102                           
|                                        | _____________                  | _____________                      | _____________                 
|PFS trading expenses                    | 783                            | 817                                | 760                           
|                                        | _____________                  | _____________                      | _____________                 
|Adjust for: (2)                         |                                |                                    |                               
|                                        |                                |                                    |                               
|- Re-organisation expenses              | 57                             | 156                                | 109                           
|- Goodwill amortisation                 | 10                             | 9                                  | 9                             
|- Goodwill impairment                   | -                              | 10                                 | -                             
|                                        | _____________                  | _____________                      | _____________                 
|PFS expenses                            | 850_____________               | 992_____________                   | 878_____________              

(1) The quoted operating
expenses for the Life Assurance businesses exclude operating expenses that are
accounted for as part of embedded value and reported as non-interest income.
These totalled £84m (Half 1 2003: £93m; Half 2 2003: £86m).

(2) A breakdown of the
non-trading items is provided in Section 2.4.

6 months to 30 June 2004 versus 6
months to 30 June 2003:

Banking and Savings trading expenses
were up £9m to £554m (Half 1 2003: £545m). This was driven by increased levels
of customer-facing staff and overall expense inflation, offset by savings from
the cost reduction programme.

Investment and protection expenses
(excluding those within embedded value) were up £11m to £37m (Half 1 2003:
£26m), largely due to the cost of rolling out multi-manager products in Scottish
Mutual and increased investment in James Hay.

General Insurance expenses of £20m
(Half 1 2003: £27m) were down £7m due to lower business volumes and lower
marketing spend.

Trading expenses in the Abbey Financial
Markets business were down £7m to £53m (Half 1 2003: £60m), reflecting lower
performance-related payments in the first half of 2004.

In Group Infrastructure, trading
expenses were up 17% to £119m (Half 1 2003: £102m) largely the result of wage
inflation and pension contribution increases, offset by savings from the cost
reduction programme.

6 months to 30 June 2004 versus 6
months to 31 December 2003:

Banking and Savings trading expenses
were down £33m to £554m (Half 2 2003: £587m) benefiting from incremental savings
from the cost reduction programme, and marketing expenditure in Half 2 2003 to
support the brand re-launch not repeated in Half 1 2004.

Investment and Protection expenses were
up £5m to £37m (Half 2 2003: £32m), reflecting increased investment in James
Hay.

Trading expenses in the Abbey Financial
Markets business were up £4m to £53m (Half 2 2003: £49m), largely due to reduced
performance-related payments in the second half of 2003.

In Group Infrastructure trading
expenses were down 7% to £119m (Half 2 2003: £128m) largely due to lower pension
costs, resulting from a change in the pension mix to less expensive schemes, and
lower performance-related costs.

2.2.2: Trading expenses by type

|                                                       | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|------------------------------------------------------ | ------------------------------ | ----------------------------- | ------------------------------
|                                                       | £ m                            | £ m                           | £ m                           
|                                                       | _____________                  | _____________                 | _____________                 
|Salaries and other compensation
      payments         | 328                            | 318                           | 321                           
|Social security costs                                  | 28                             | 27                            | 28                            
|Pension costs (1)                                      | 60                             | 66                            | 55                            
|                                                       | _____________                  | _____________                 | _____________                 
|Salaries and other staff
costs                         | 416                            | 411                           | 404                           
|                                                       |                                |                               |                               
|Bank, legal and professional fees                      | 53                             | 60                            | 32                            
|Advertising and marketing                              | 40                             | 56                            | 35                            
|                                                       | _____________                  | _____________                 | _____________                 
|Bank, legal, marketing and professional
      expenses | 93                             | 116                           | 67                            
|                                                       |                                |                               |                               
|Software, computer and administration
      expenses   | 145                            | 151                           | 150                           
|                                                       |                                |                               |                               
|Premises and equipment
      depreciation              | 40                             | 45                            | 45                            
|                                                       |                                |                               |                               
|Other property and equipment
      expenses            | 89                             | 94                            | 94                            
|                                                       | _____________                  | _____________                 | _____________                 
|PFS trading expenses                                   | 783_____________               | 817_____________              | 760_____________              

(1) Pension costs relate to
PFS only, and do not include £7m (Half 1 2003: £6m; Half 2 2003: £6m) relating
to the life businesses accounted for on an embedded value basis (reported within
non-interest income).

6 months to 30 June 2004 versus 6
months to 30 June 2003:

Total employment costs were higher at
£416m (Half 1 2003: £404m) comprising:

> salaries and other
compensation costs higher, with normal salary inflation, and recruitment into
customer-facing roles in the branches and call centres being offset by headcount
savings from the cost programme; and

> an increase in pension costs
of £5m to £60m (Half 1 2003: £55m) largely due to increased charges following
the 31 March 2003 actuarial review. A detailed analysis of the pension fund
deficit is included in Appendix 3.

Bank, legal, and professional expenses
of £53m were up 66% on the first half of 2003, due to costs associated with
outsourcing arrangements (previously capitalised), underwriting costs review and
review of customer-contact processes. Advertising and marketing spend was £5m
higher (Half 1 2003: £35m) due to additional spend to support the Abbey brand.

Software, computer and administration
expenses of £145m (Half 1 2003: £150m) were lower due to reduced administrative
expenses, cost-reduction initiatives and system rationalisation.

Premises and equipment depreciation
expenses of £40m decreased by 11% (Half 1 2003 £45m), due to asset write offs
and run off more than offsetting increased capital investments.

Other property and equipment expenses
fell 5% to £89m (Half 1 2003: £94m).

6 months to 30 June 2004 versus 6
months to 31 December 2003:

Total employment costs were up 1% to
£416m (Half 2 2003: £411m) with increases in customer-facing staff and normal
salary inflation in part offset by a reduction in pension costs following a
change in pension mix and the impact of the cost reduction programme.

Bank, legal, marketing and professional
expenses of £93m were down 20% on the second half of 2003. This was driven by
the non-recurrence of costs in relation to Abbey's business relaunch.

The remaining movements by type are
consistent with the explanations described above.

2.2.3: Cost base reconciliation

|                                                             | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|------------------------------------------------------------ | ------------------------------ | ----------------------------- | ------------------------------
|                                                             | £ m                            | £ m                           | £ m                           
|                                                             | _____________                  | _____________                 | _____________                 
|PFS trading expenses                                         | 783                            | 817                           | 760                           
|Trading expenses included in embedded value
      (EV)       | 84                             | 86                            | 93                            
|                                                             | _____________                  | _____________                 | _____________                 
|Total PFS trading expense base (including EV
      expenses) | 867                            | 903                           | 853                           
|                                                             |                                |                               |                               
|Add: Estimated savings achieved from cost
      programme    | 93                             | 80                            | 46                            
|                                                             | _____________                  | _____________                 | _____________                 
|PFS trading expenses pre-cost
      savings                  | 960                            | 983                           | 899                           
|                                                             | _____________                  | _____________                 | _____________                 
|Estimated annualised cost savings                            | 183_____________               | 165_____________              | 125_____________              

Cost programme

The total impact of the cost programme
in the period was a reduction in costs of £93m, with annualised savings from
actions already taken estimated to be £183m, up from £165m at the start of the
year. This improvement in savings in the period relates to pensions, reduced
consultancy, procurement, IT functional efficiencies and rationalisation within
Abbey Financial Markets.

Cumulative implementation spend
specifically relating to the cost programme to date, amounts to £239m, including
an element of empty premises provisions. As previously flagged, the overall
ratio of cost reduction implementation costs to savings is expected to be in
line with previous guidance, but may increase from the current run-rate due to
the higher investment required to deliver remaining cost saving.

Cost reconciliation

PFS trading expenses pre-cost savings
fell by £23m to £960m (Half 2 2003: £983m).

The non-recurrence of branding and
communication spend to support the brand re-launch in the second half of 2003
contributed to the overall reduction. In addition, pension accruals were lower
due to a change in pension mix, with a higher proportion of employees on lower
contribution rate schemes, and lower ongoing costs relating to the outsourced
ventures and savings from the property rationalisation programme.

2.2.4: Trading expenses and headcount by function

This analysis is included to assist the
reader in understanding the cost base in the new functional divisions. The
expense base includes trading expenses and costs included within the embedded
value relating to life assurance businesses reported as part of non-interest
income.

|Trading expense base (including EV
      expenses)     | 6 months to30
      June2004 | 6 months to31 December
      2003 | 6 months to30
      June2003
|------------------------------------------------------ | ---------------------------- | --------------------------------- | ----------------------------
|                                                       | £ m                          | £ m                               | £ m                         
|                                                       | _____________                | _____________                     | _____________               
|Customer Sales                                         | 225                          | 213                               | 219                         
|Customer Propositions                                  | 46                           | 55                                | 40                          
|Customer Operations                                    | 175                          | 207                               | 152                         
|Human Resources                                        | 26                           | 24                                | 21                          
|Information Technology                                 | 231                          | 238                               | 236                         
|Abbey Financial Markets                                | 48                           | 44                                | 52                          
|Central and Group Items                                | 116                          | 122                               | 133                         
|                                                       | _____________                | _____________                     | _____________               
|PFS trading expense base (including EV
      expenses) | 867_____________             | 903_____________                  | 853_____________            

6 months to 30 June 2004 versus 6
months to 30 June 2003

Customer Sales expenses increased by 3%
due to increased customer-facing roles and normal salary inflation. Customer
Propositions increased by 15% as a result of reduced Half 1 2003 activity in
anticipation of the brand re-launch in Half 2 2003. Customer Operations costs
were higher by 15% as a result of additional dual systems running costs, higher
salary costs and increased headcount to restore service levels, offset by cost
reduction initiatives. Human Resources costs increased to £26m due to additional
recruitment and training costs. Information Technology costs are lower by 2% to
£231m due to cost reduction benefits and property rationalisation offset by rent
increases. Central and Group Items declined by 13% to £116m largely due to lower
headcount.

6 months to 30 June 2004 versus 6
months to 31 December 2003

Overall expense trends versus the
second half of 2003 were affected by similar factors, with two exceptions.
Customer Propositions were down 16% due to the brand relaunch in Half 2 2003.
Customer Operations costs were down due to lower depreciation following asset
write-downs in the second half of 2003.

|Headcount                                  | 30 June2004         | 31
      December2003Restated
|------------------------------------------ | ------------------- | -----------------------------
|                                           | _____________       | _____________                
|Customer Sales                             | 12,225              | 11,812                       
|Customer Propositions                      | 366                 | 368                          
|Customer Operations                        | 8,466               | 8,211                        
|Human Resources                            | 531                 | 543                          
|Information Technology                     | 2,049               | 2,119                        
|Abbey Financial Markets                    | 540                 | 570                          
|Central                                    | 1,169               | 1,190                        
|                                           | _____________       | _____________                
|PFS total full time equivalent
      (FTE) | 25,346_____________ | 24,813_____________          

Overall PFS headcount levels have
increased by 533. Reductions in all the support divisions were offset by
recruitment into customer-facing roles as part of the re-organisation programme.
In addition, customer operations headcount rose as a result of temporary staff
and some overlap during the site consolidation programme and transfer of roles
to India.

The total PFS FTE numbers disclosed
above include staff employed on a contract basis in relation to cost reduction
and strategic and regulatory change programmes.

The headcount reported under Customer
Operations includes 1,390 FTE employed as part of the EDS joint venture.
Excluded from the above FTE are circa 350 roles (not on payroll) transferred to
outsourcing arrangements in India.

In the PBU, headcount was 957 FTE (not
disclosed in the table above) as at 30 June 2004, compared to 1,083 at the start
of the year, reflecting the continued wind down and exit from these businesses.



2.3: Personal Financial Services (PFS)
provisions charges

2.3.1: Trading P&L provisions
charges(1)

|                                                | 6 months to
      30 June 2004 | 6 months to
      31 December 2003 | 6 months to
      30 June 2003
|----------------------------------------------- | ------------------------------ | ---------------------------------- | ------------------------------
|                                                | £ m                            | £ m                                | £ m                           
|                                                | _____________                  | _____________                      | _____________                 
|Mortgages                                       | (1)                            | 3                                  | 5                             
|Unsecured personal loans                        | 31                             | 33                                 | 28                            
|Credit cards                                    | 3                              | 4                                  | 6                             
|Banking                                         | 31                             | 21                                 | 18                            
|Other                                           | 3                              | 5                                  | 7                             
|                                                | _____________                  | _____________                      | _____________                 
|PFS provisions for bad and doubtful
      debts | 67                             | 66                                 | 64                            
|                                                |                                |                                    |                               
|Other provisions                                | 1                              | 58                                 | 3                             
|                                                | _____________                  | _____________                      | _____________                 
|PFS trading provisions                          | 68                             | 124                                | 67                            
|                                                | _____________                  | _____________                      | _____________                 
|Adjust for: (1)                                 |                                |                                    |                               
|                                                |                                |                                    |                               
|- Embedded value charges and rebasing
      (2) | -                              | -                                  | 80                            
|- Re-organisation expenses
      (3)            | 2                              | 22                                 | 12                            
|                                                | _____________                  | _____________                      | _____________                 
|PFS provisions                                  | 70_____________                | 146_____________                   | 159_____________              

(1) A breakdown of the
non-trading items is provided in Section 2.4.

(2) Charge in Half 1 2003
relates to the impact of tax law changes on the structure of the Scottish
Provident acquisition.

(3) Includes empty premises
provisions arising from the review of site locations and certain asset
write-downs.

6 months to 30 June 2004 versus 6
months to 30 June 2003:

In total, PFS trading provisions were
broadly flat at £68m (Half 1 2003: £67m).

There was a release of mortgage
provisions of £1m (Half 1 2003: £5m charge) as a result of favourable arrears,
and lower properties in possession and related losses incurred. Provisions
relating to unsecured personal loans grew by £3m to £31m following strong asset
growth, particularly in cahoot, while banking provisions increased to £31m (Half
1 2003: £18m) mainly due to increased fraud write-offs, in line with industry
experience.

6 months to 30 June 2004 versus 6
months to 30 June 2003:

PFS trading provisions decreased by 45%
to £68m (Half 2 2003: £124m), reflecting the non-recurrence of a £50m provision
for potential mis-selling in the second half of 2003. Excluding this, provisions
remained broadly flat reflecting the excellent mortgage credit quality and
consequent release of £1m of mortgage provisions being more than offset by
increased Banking provisions due to fraud write-offs. These write offs reflect
the increased fraud losses sustained, consistent with the industry as a whole.

2.3.2: Non-performing loans (NPLs)

|                                                | At
      30 June 2004 | At
      31 December 2003 | At
      30 June 2003
|----------------------------------------------- | --------------------- | ------------------------- | ---------------------
|                                                | £ m                   | £ m                       | £ m                  
|                                                | _____________         | _____________             | _____________        
|Loans provided for                              | 181                   | 175                       | 183                  
|Arrears greater than 90 days not
      provided | 346                   | 414                       | 490                  
|                                                | _____________         | _____________             | _____________        
|Total NPLs                                      | 527                   | 589                       | 673                  
|                                                |                       |                           |                      
|Total loans and advances to customers
      (1) | 78,004                | 75,114                    | 67,218               
|                                                |                       |                           |                      
|Total provisions                                | 319                   | 323                       | 312                  
|                                                | _____________         | _____________             | _____________        
|NPLs as a % of loans and
    advances           | 0.68%                 | 0.78%                     | 1.00%                
|                                                | _____________         | _____________             | _____________        
|Provisions as a % of NPLs                       | 60.53%_____________   | 54.84%_____________       | 46.36%_____________  

(1) The quoted loans and
advances to customers are net of securitisations.

The value of non-performing loans
across all products decreased to £527m (December 2003: £589m), benefiting from
favourable market conditions, good credit control, and strong credit quality of
new business being written. The focus on credit control continues despite the
current benign economic market conditions.

As a percentage of loans and advances,
non-performing loans have decreased to 0.68% (December 2003: 0.78%), with
provision coverage of 60.53% (December 2003: 54.84%) - a comfortable coverage
ratio given level of asset growth and quality.

2.3.3: Mortgage arrears, properties in possession and
lending mix

Mortgage arrears

|Cases                 | 30 June 2004  | 31 December 2003
|--------------------- | ------------- | ----------------
|                      | No.cases(000) | %oftotal        
|                      | _____________ | _____________   
|1 - 2 months arrears  | 19.6          | 1.43            
|3 - 5 months arrears  | 4.9           | 0.36            
|6 - 11 months arrears | 1.7           | 0.12            
|12 months + arrears   | 0.3           | 0.03            
|                      | _____________ | _____________   

|Value of arrears         | 30 June 2004  |               | 31 December 2003 |              
|------------------------ | ------------- | ------------- | ---------------- | -------------
|                         | £ m           | % of total    |                  | £ m          
|                         | _____________ | _____________ |                  | _____________
|1 - 2 months arrears     | 12.0          | 0.01          |                  | 11.2         
|3 - 5 months arrears     | 7.4           | 0.01          |                  | 7.5          
|6 - 11 months arrears    | 4.2           | 0.01          |                  | 5.3          
|12 months + arrears      | 2.7           | -             |                  | 3.2          
|                         | _____________ | _____________ |                  | _____________
|Total arrears            | 26.3          | 0.03          |                  | 27.2         
|                         | _____________ | _____________ |                  | _____________
|Balance sheet provisions | 191           |               |                  | 190          
|                         |               |               |                  |              
|Coverage (times)         | 7.3x          |               |                  | 7.0x         
|                         | _____________ | _____________ |                  | _____________

Mortgage properties in possession

|                     | 30 June 2004  | 31 December 2003
|-------------------- | ------------- | ----------------
|                     | Nos           | % of loans      
|                     | _____________ | _____________   
|No. of repossessions | 534           | 0.04            
|No. of sales         | 597           | 0.04            
|Stock                | 262           | 0.02            
|                     | _____________ | _____________   

The abbreviation CML stands for Council
of Mortgage Lenders. Data for 30 June 2004 is not made publicly available until
29 July 2004.

Credit quality in the first half of
2004 has continued to improve on the strong trends experienced through 2003.
Mortgage 3-month + arrears cases have reduced further to 6,900 compared to 8,200
at 31 December 2003. This amounts to 0.51% of the total, compared to 0.59% at 31
December 2003.

By value, 3-month + arrears totalled
£14.3m (December 2003: £16.0m), with provisions in place of £191m (31 December
2003: £190m).

The stock of properties in possession
fell by 19% to 262 (December 2003: 325), with the number of property
repossessions also falling by 1,108 to 534 (December 2003: 1,642).

Mortgage new business credit quality

|                               | 30 June
      2004_____________ | 31 December
      2003_____________
|------------------------------ | ------------------------------- | -----------------------------------
|Loan-to-value (LTV) analysis:  |                                 |                                    
|                               |                                 |                                    
|New business:                  |                                 |                                    
|> 90%                          | 8%                              | 9%                                 
|75%-90%                        | 30%                             | 28%                                
|< 75%                          | 62%                             | 63%                                
|Average                        | 58%                             | 57%                                
|Average LTV of stock (indexed) | 45%                             | 45%                                
|                               |                                 |                                    
|New Business Profile:          |                                 |                                    
|                               |                                 |                                    
|First Time Buyers              | 19%                             | 17%                                
|Home Movers                    | 38%                             | 33%                                
|Remortgagers                   | 43%                             | 50%                                
|                               |                                 |                                    
|Average earnings multiple      | 2.6_____________                | 2.5_____________                   

There has been no deterioration of quality over the
period, with most credit quality indicators remaining similar to or better than
those reported in December 2003. In particular:

> Arrears and properties in
possession have continued to decrease during 2004 to historic lows.

> The average LTV of new
business has remained broadly constant in 2004 at 58%, despite historically
lower loan-to-value remortgage business reducing as a proportion of Abbey's new
business.

> The proportion of new
business written with a high LTV (greater than 90%) has continued to drop in
2004.

> There has been a tightening
of policy rules around income verification with a fast-track mortgage introduced
for loan-to-value mortgages less than 60%.

> Income multiples are (as
expected) increasing, given the continued increase in house prices. The increase
is in line with the market. A review of income multiples has resulted in tighter
guidelines for a riskier segment of business and more relaxed policy for more
valued and low risk customers.

> For niche markets such as
Buy-to-Let, Abbey is under-represented and has not significantly increased
exposure. These niche markets are still under review for a wider rollout.

> The proportion of remortgage
business taking further equity release has remained unchanged for the last 18
months.

2.3.4: Banking and unsecured personal
loan (UPL) arrears

|                                                       | At
      30 June 2004 | At
      31 December 2003 | At
      30 June 2003
|------------------------------------------------------ | --------------------- | ------------------------- | ---------------------
|                                                       | £ m                   | £ m                       | £ m                  
|                                                       | _____________         | _____________             | _____________        
|Total banking and UPL arrears (1)
      (2)            | 156                   | 146                       | 131                  
|                                                       |                       |                           |                      
|Total banking and UPL asset                            | 3,193                 | 3,019                     | 2,935                
|                                                       |                       |                           |                      
|Banking and UPL arrears as a percentage of
      asset | 4.9%                  | 4.8%                      | 4.5%                 
|                                                       | _____________         | _____________             | _____________        

(1) Banking arrears are
defined as customers whose borrowings exceed their authorised overdraft by over
£100.

(2) UPL arrears are defined
as the balances of accounts that are two or more monthly instalments in arrears.

Arrears levels have increased to £156m
(December 2003: £146m), though remained flat as a percentage of asset, driven by
strong unsecured personal loan growth and the growing maturity of the cahoot
unsecured personal lending book.

2.3.5: Provisions for doubtful debts analysis (PFS) -
balance sheet

|                         | 30 June 2004               | 31 December 2003            
|------------------------ | -------------------------- | ----------------------------
|                         | Provisionsbalance£
      m | Balance %
      ofloanassets
|                         | _____________              | _____________               
|Mortgages                | 191                        | 0.2                         
|Banking                  | 35                         | 10.8                        
|Unsecured personal loans | 45                         | 2.8                         
|cahoot                   | 43                         | 3.3                         
|Abbey Business           | 5                          | 1.0                         
|                         | _____________              | _____________               
|Banking and Savings      | 319                        | 0.3                         
|                         |                            |                             
|Scottish Provident       | 80                         | 6.5                         
|                         | _____________              | _____________               
|Total PFS                | 399_____________           | 0.5_____________            

PFS provisions for bad and doubtful
debts fell to £399m (December 2003: £403m)

Total provisions for bad and doubtful
debts in Banking and Savings fell 1% to £319m (December 2003: £323m), driven by
an increase in cahoot provisions, more than offset by increased fraud write offs
against provisions in the period.

2.3.6: Provisions for doubtful debts analysis (PFS) -
balance sheet reconciliation

|                                         | Mortgages£ m_____________ | Unsecured£ m_____________ | Other£ m_____________ | Total£ m_____________
|---------------------------------------- | ------------------------- | ------------------------- | --------------------- | ---------------------
|At 1 January 2004                        |                           |                           |                       |                      
|General                                  | 183                       | 27                        | 88                    | 298                  
|Specific                                 | 7                         | 90                        | 8                     | 105                  
|                                         | _____________             | _____________             | _____________         | _____________        
|Total                                    | 190                       | 117                       | 96                    | 403                  
|                                         |                           |                           |                       |                      
|Transfer from P&L account                | (1)                       | 63                        | 5                     | 67                   
|Recoveries                               | 2                         | 12                        | 0                     | 14                   
|Disposals of subsidiary
    undertakings | -                         | -                         | (11)                  | (11)                 
|Irrecoverable amounts written off        | -                         | (69)                      | (5)                   | (74)                 
|                                         | _____________             | _____________             | _____________         | _____________        
|At 30 June 2004                          | 191                       | 123                       | 85                    | 399                  
|                                         | _____________             | _____________             | _____________         | _____________        
|General                                  | 185                       | 31                        | 84                    | 300                  
|Specific                                 | 6                         | 92                        | 1                     | 99                   
|                                         | _____________             | _____________             | _____________         | _____________        
|Total                                    | 191_____________          | 123_____________          | 85_____________       | 399_____________     



2.4: Personal Financial Services
non-trading charges

2.4.1: Embedded value charges and
rebasing

|                                                | 6 months to 30 June
    2004
|----------------------------------------------- | ----------------------------
|                                                | ANL                         
|                                                | £ m                         
|                                                | _____________               
|Investment assumptions and
    variances        | (7)                         
|Other "one off" adjustments                     | -                           
|                                                | _____________               
|Total embedded value charges and
      rebasing | (7)_____________            



|                                                                                                                | 6 months to 31 December
      2003
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------
|                                                                                                                | ANL                               
|                                                                                                                | £ m                               
|                                                                                                                | _____________                     
|Investment assumptions and
    variances                                                                        | 22                                
|Guaranteed liability / market value
      adjustments                                                           | -                                 
|Provision required with respect to the
      shareholders' liability for "realistic" balance sheet
    position | -                                 
|Other "one-off" adjustments                                                                                     | -                                 
|                                                                                                                | _____________                     
|Total embedded value charges and
      rebasing                                                                 | 22_____________                   



|                                                      | 6 months to 30 June
    2003
|----------------------------------------------------- | ----------------------------
|                                                      | ANL                         
|                                                      | £ m                         
|                                                      | _____________               
|Investment assumptions and
    variances              | 4                           
|Guaranteed liability / market value
      adjustments | -                           
|Scottish Provident contingent loan
      provision    | -                           
|                                                      | _____________               
|Total embedded value charges and
      rebasing       | 4_____________              

Investment assumptions and variances

The variance represents the adjustment
to allow for differences between actual market performance and our assumptions
set out at the beginning of the year. In Scottish Mutual, the cost of £31m
principally reflects the impact of the fall in fixed interest markets following
the rise in interest rates over the first six months. In addition, it includes
an adjustment to incorporate changes in asset mix during the period, which
impacts the assumed value of future profits. The positive £2m Scottish Provident
investment variance is largely driven by a change in asset mix in the non-profit
sub-fund out of cash and into bonds.

Guaranteed liability / market value
adjustments

There was no impact in the current
period in respect of the hedges taken out in previous years to reduce the
volatility of guaranteed liabilities and market value adjustments, since these
were incorporated in the recently announced with profit funds review. The credit
in Scottish Mutual in Half 2 2003 represents the benefit of lower assumed
bonuses (and consequently guarantee liabilities) while the loss in Half 1 was
due to the effect of lower market levels when the hedges were finalised as
compared to the 2002 year end position. The charge in Scottish Provident in Half
1 and 2 2003 represented other products not captured by the 2002 review.

Provision required with respect to the
shareholders' liability for "realistic" balance sheet position

In Half 2 2003, a provision of £373m
was raised based on initial estimates of the shareholder impact of implementing
the CP 195 realistic balance sheet regime on the Scottish Mutual and Scottish
Provident with profit funds. The detailed review of the with profit funds has
been completed, agreed with the FSA, and recently announced, highlighting there
would be no additional profit and loss or capital impact, over and above amounts
taken in prior years. As part of the agreement, Abbey agreed to make a
substantial non-refundable contribution into the Scottish Mutual with profits
fund, which has been offset by provisions raised in previous years.



2.4.2: Re-organisation expenses

|                                | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                | £ m                            | £ m                           | £ m                           
|                                | _____________                  | _____________                 | _____________                 
|Cost reduction programme        | 57                             | 94                            | 54                            
|Strategic and regulatory change | 37                             | 26                            | -                             
|Asset write-downs               | -                              | 69                            | 72                            
|                                | _____________                  | _____________                 | _____________                 
|Total re-organisation
expenses  | 94_____________                | 189_____________              | 126_____________              

Cost programme expenses of £57m (Half 1
2003: £54m) represent the current period implementation expenses relating to the
cost reduction programme. Estimated annualised cost savings booked to date
amount to £183m (December 2003: £165m), and we remain confident of meeting the
original cost reduction target of over £200m by the end of the year, 12 months
ahead of schedule.

Implementation costs in relation to
strategic and regulatory change programmes of £37m (Half 1 2003: £nil) are made
up of the following:

> costs relating to the
implementation of the new strategy, totalling £15m, the majority of which
relates to consultancy spend; and

> one-off mandatory regulatory
change programme expenses of £22m. The main components include International
Accounting Standards, Basel II, Sarbanes-Oxley, with profit funds review and
Anti Money Laundering. Given the extent of regulatory pressures facing the
industry, we would anticipate this level of expense in relation to these and
other projects to continue for the remainder of this year, and in some cases
into 2005.

As previously flagged, asset
write-downs in 2003 were non-recurring. They related to the expensing of costs
previously capitalised in relation to the outsourced processing platforms for
mortgages and insurance.

2.4.3: Goodwill charges

|                       | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|---------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                       | £ m                            | £ m                           | £ m                           
|                       | _____________                  | _____________                 | _____________                 
|Goodwill amortisation  | 10                             | 9                             | 9                             
|Goodwill impairment    | -                              | 10                            | -                             
|                       | _____________                  | _____________                 | _____________                 
|Total goodwill charges | 10_____________                | 19_____________               | 9_____________                

Goodwill charges of £10m comprise
mainly the ongoing amortisation charge in relation to Scottish Provident and
Fleming Premier Banking.



2.4.4: Reconciliation of statutory to
trading profit and loss

Income

|                                          | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|----------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                          | £ m                            | £ m                           | £ m                           
|                                          | _____________                  | _____________                 | _____________                 
|Trading net interest income
      (1)     | 798                            | 849                           | 860                           
|                                          |                                |                               |                               
|Statutory non-interest income             | 462                            | 173                           | 528                           
|                                          |                                |                               |                               
|Adjust for:                               |                                |                               |                               
|- Embedded value charges and
    rebasing | 24                             | 341                           | 22                            
|- Re-organisation expenses                | 35                             | 11                            | 5                             
|                                          | _____________                  | _____________                 | _____________                 
|Trading non-interest income               | 521                            | 525                           | 555                           
|                                          | _____________                  | _____________                 | _____________                 
|Trading income                            | 1,319_____________             | 1,374_____________            | 1,415_____________            

(1) Unaffected by the
non-trading charges and therefore consistent with statutory net interest income.

Expenses

|                           | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|-------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                           | £ m                            | £ m                           | £ m                           
|                           | _____________                  | _____________                 | _____________                 
|Total statutory expenses   | 850                            | 992                           | 878                           
|                           |                                |                               |                               
|Adjust for:                |                                |                               |                               
|- Re-organisation expenses | (57)                           | (156)                         | (109)                         
|- Goodwill amortisation    | (10)                           | (9)                           | (9)                           
|- Goodwill impairment      | -                              | (10)                          | -                             
|                           | _____________                  | _____________                 | _____________                 
|Trading expenses           | 783_____________               | 817_____________              | 760_____________              

Provisions

|                                                                  | 6 months to
      30 June 2004 | 6 months to
      31 Dec 2003 | 6 months to
      30 June 2003
|----------------------------------------------------------------- | ------------------------------ | ----------------------------- | ------------------------------
|                                                                  | £ m                            | £ m                           | £ m                           
|                                                                  | _____________                  | _____________                 | _____________                 
|Provisions for bad and doubtful
    debts                         | 67                             | 66                            | 144                           
|                                                                  |                                |                               |                               
|Adjust for:                                                       |                                |                               |                               
|Embedded value charges and rebasing
      (2)                     | -                              | -                             | (80)                          
|                                                                  | _____________                  | _____________                 | _____________                 
|Trading provisions for bad and doubtful
      debts               | 67                             | 66                            | 64                            
|                                                                  |                                |                               |                               
|Provisions for contingent liabilities and
      commitments       | 3                              | 80                            | 5                             
|                                                                  |                                |                               |                               
|Adjust for:                                                       |                                |                               |                               
|Re-organisation expenses                                          | (2)                            | (22)                          | (2)                           
|                                                                  | _____________                  | _____________                 | _____________                 
|Trading provisions for contingent liabilities
      & commitments | 1                              | 58                            | 3                             
|                                                                  |                                |                               |                               
|Amounts written off fixed asset
      investments                 | -                              | -                             | 10                            
|                                                                  |                                |                               |                               
|Adjust for:                                                       |                                |                               |                               
|Asset write-downs                                                 | -                              | -                             | (10)                          
|                                                                  | _____________                  | _____________                 | _____________                 
|Trading amounts written off fixed asset
      investments         | -                              | -                             | -                             
|                                                                  | _____________                  | _____________                 | _____________                 
|Total trading provisions                                          | 68_____________                | 124_____________              | 67_____________               

(2) Provision relates to the
impact of tax law changes on the structure of the Scottish Provident
acquisition.

2.4.5. Basis of results presentation

Trading Performance

Abbey is nearly half way through its
3-year re-organisation and change programme, refocusing solely on Personal
Financial Services in the United Kingdom. This report reflects the split of
Abbey between the ongoing Personal Financial Services (PFS) businesses, and
those being managed for value in the Portfolio Business Unit (PBU).

Given the scale of change involved and
the charges that result from restructuring, management believe that it is
helpful to present the results of the ongoing PFS business on both a statutory
and a 'Trading Performance' basis to enable the reader to discern the underlying
performance and trends in the business. The PFS group of reportable segments
contain the following segments, Banking and Savings; Investment and Protection;
Abbey Financial Markets; General Insurance and Group Infrastructure. The PBU
group of reportable segments consists of Wholesale Banking; Motor Finance and
Litigation Funding; and Other, (which includes the International Life
businesses).

Abbey's management reviews discrete
financial information for each of its segments that include measures of
operating results and assets. However, due to the nature of our ongoing PFS
group of reportable segments versus our PBU group of reportable segments, which
is being managed for value, the two segments are managed differently. The PFS
group of reportable segments are managed primarily on the basis of its results,
which are measured on a trading basis. The PBU group of reportable segments are
managed both on the basis of its results, which is measured on a management
basis, and on the basis of its net asset value, as measured by the regulatory
equity in the business. The trading basis for our PFS group of reportable
segments and the management basis for our PBU group of reportable segments are
collectively known as the "trading" basis, as presented below.

The main adjustments between the
trading and statutory results are outlined below:

> Embedded value charges and
rebasing - these largely reflect both equity and debt market movements in the
period, which do not necessarily affect the underlying performance of the
businesses and customer relationships that are long-term in their nature. The
short-term market movements are, however, an important factor in the management
of the business but these are managed separately with a more risk-based focus.

> Re-organisation costs -
relating to the ongoing cost reduction programme and related re-organisation
exercise. Non-recurring items are reported separately, to allow the presentation
of the underlying drivers of the cost base that will remain after the exercise
is complete. A detailed breakdown of the implementation costs is included in
section 2.4.2.

> Goodwill charges - the scheduled
amortisation of goodwill, or any write-down of amounts previously capitalised,
are non-cash and do not necessarily reflect current business performance.

> Income from associated
undertakings - included within trading income because it is a regular source of
income to our operations.

The PFS group of reportable segments'
adjustments are the:

> embedded value charges and
rebasing;

> re-organisation costs; and

> goodwill charges.

The PBU group of reportable segments'
adjustments are the inclusion of:

> income from associated
undertakings; and

> profit on disposal of group
undertakings.



3. PORTFOLIO BUSINESS UNIT (PBU)

3.1: Summarised PBU

Profit and loss

|                                                                              | 6 months to
      30 June
      2004___________ | 6 months to
      31 December
      2003___________ | 6 months to
      30 June
      2003___________
|----------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------- | -----------------------------------------------
|                                                                              | £ m                                             | £ m                                                 | £ m                                            
|                                                                              |                                                 |                                                     |                                                
|Wholesale Banking excluding provisions,
      impairments and disposal losses | 71                                              | 27                                                  | 113                                            
|Provisions, impairments and disposal
      losses                             | (19)                                            | (443)                                               | (568)                                          
|                                                                              | ___________                                     | ___________                                         | ___________                                    
|Wholesale Banking                                                             | 52                                              | (416)                                               | (455)                                          
|                                                                              |                                                 |                                                     |                                                
|Motor Finance and Litigation
    Funding                                      | (36)                                            | (48)                                                | (2)                                            
|International life assurance
      businesses                                 | 1                                               | 7                                                   | (33)                                           
|European Banking and other                                                    | (7)                                             | 31                                                  | (5)                                            
|                                                                              | ___________                                     | ___________                                         | ___________                                    
|PBU profit / (loss) before
tax                                                | 10___________                                   | (426)___________                                    | (495)___________                               

PBU assets and risk-weighted assets
(RWAs) by business

|                                               | At 3O June 2004 | At 31 December
2003
|---------------------------------------------- | --------------- | -------------------
|                                               | Assets          | RWAs               
|                                               | £ bn            | £ bn               
|                                               | ___________     | ___________        
|Wholesale Banking exit portfolios              | 5.5             | 3.7                
|                                               |                 |                    
|Motor Finance and Litigation Funding
      (1) | 1.3             | 1.4                
|                                               |                 |                    
|European Banking and other
      (2)           | 1.5             | 0.8                
|                                               | ___________     | ___________        
|Total PBU                                      | 8.3             | 5.9                
|                                               | ___________     | ___________        

(1) Motor Finance and
Litigation Funding's RWAs exceed the value of assets due to the regulatory
treatment of the joint venture with Peugeot, whereby 100% of assets are included
for regulatory purposes.

(2) The table excludes the
shareholder net assets of the international life assurance businesses of £208m
(December 2003: £207m) since they do not have an RWA equivalent.

The improved performance in the PBU
reflects the significantly lower absolute level of asset disposals, and the
provisioning down to market realisable values in securities and loans taken in
2003. As a result, asset disposals to date in 2004 have only had a limited
profit and loss impact, with sales of finance leasing businesses sold at a
profit to book value.

3.2: Wholesale Banking exit portfolios

3.2.1: Provisions and losses on asset disposals

|                                                      | 30 June 2004 | 31 December 2003
|----------------------------------------------------- | ------------ | ----------------
|                                                      | £ m          | £ m             
|                                                      | ___________  | ___________     
|Debt securities:                                      |              |                 
|- Corporates                                          | -            | 132             
|- High Yield                                          | -            | 24              
|- CDOs                                                | -            | 322             
|- Other asset backed                                  | (7)          | 36              
|Loan portfolio:                                       |              |                 
|- Project Finance                                     | 11           | 145             
|- Real Estate                                         | 6            | 7               
|- Other                                               | 23           | 79              
|Operating Leasing businesses                          | -            | 64              
|Private Equity                                        | (16)         | 202             
|Other                                                 | 2            | -               
|                                                      | ___________  | ___________     
|Total provisions, impairments & disposal
      losses | 19           | 1,011           
|                                                      | ___________  | ___________     

The total charge for provisions,
impairments and disposal losses for the six months to June 2004 is £19m
(December 2003: charge of £1,011m). This reflectsthe significantly lower
level of asset disposals, and the provisioning down to marketrealisable
values in securities and loans taken in 2003.

3.2.2: Balance sheet provisions and
coverage

|                               | At 30 June
      2004 | At 31 December
      2003
|------------------------------ | --------------------- | -------------------------
|                               | £ m                   | £ m                      
|                               | ___________           | ___________              
|Specific provisions            | 207                   | 599                      
|General provisions             | 174                   | 173                      
|                               | ___________           | ___________              
|Total balance sheet
provisions | 381                   | 772                      
|                               | ___________           | ___________              

Total balance sheet provisions reduced
to £381m during 2004 as a result of sales of debt securities and loans. The
difference between the profit and loss provision charge and balance sheet
provision movement is a reflection of balance sheet provision releases following
asset sales and exchange rate movements.

This is detailed in the table below:

|                                                      | Specific
      provisions | General
      provisions | Total
      provisions
|----------------------------------------------------- | ------------------------- | ------------------------ | ----------------------
|                                                      | £ m                       | £ m                      | £ m                   
|                                                      | ___________               | ___________              | ___________           
|2004 opening balance                                  | 599                       | 173                      | 772                   
|Profit and loss charge in 6 months to June
      2004 | (17)                      | 2                        | (15)                  
|Release on disposal                                   | (366)                     | -                        | (366)                 
|Other (including foreign exchange
      movements)    | (9)                       | (1)                      | (10)                  
|                                                      | ___________               | ___________              | ___________           
|Closing balance At 30 June
    2004                   | 207                       | 174                      | 381                   
|                                                      | ___________               | ___________              | ___________           



Coverage ratios

|                                 | At 30 June
      2004 | At 31 December
      2003
|-------------------------------- | --------------------- | -------------------------
|                                 | £ m                   | £ m                      
|                                 | ___________           | ___________              
|Debt securities provided against | 32                    | 335                      
|Specific provisions              | (28)                  | (109)                    
|Coverage (%)                     | 87.5%                 | 32.5%                    
|                                 |                       |                          
|Loans provided against           | 446                   | 696                      
|Specific provisions              | (90)                  | (160)                    
|Coverage (%)                     | 20.2%                 | 23.0%                    
|                                 |                       |                          
|Total asset provided against     | 478                   | 1,031                    
|                                 |                       |                          
|Specific provisions              | (118)                 | (269)                    
|General provisions               | (153)                 | (173)                    
|                                 | ___________           | ___________              
|Total provisions                 | (271)                 | (442)                    
|                                 |                       |                          
|Coverage (%)                     | 56.7%                 | 42.9%                    
|                                 | ___________           | ___________              

The coverage ratio increased to 56.7%
(December 2003: 42.9%), reflecting sales of debt securities and loans.

Total specific provisions in the table
of £118m differ to the total on the balance sheet of £207m, due to provisions
relating to the Newark Collateralised Bond Obligation and Private Equity.



3.2.3: Summary portfolio details

|                   | At 30 June 2004   | At 31 December
2003
|------------------ | ----------------- | -------------------
|                   | Assets
      £ bn | RWAs
      £ bn    
|                   | ___________       | ___________        
|Debt securities    | 0.5               | 0.1                
|Loan portfolio     | 0.9               | 0.9                
|Leasing businesses | 4.1               | 2.7                
|Private Equity     | -                 | -                  
|Other              | -                 | -                  
|                   | ___________       | ___________        
|Total              | 5.5               | 3.7                
|                   | ___________       | ___________        

3.2.4: Debt securities

|                                               | At 30 June 2004   | At 31 December
2003
|---------------------------------------------- | ----------------- | -------------------
|                                               | Assets
      £ bn | RWAs
      £ bn    
|                                               | ___________       | ___________        
|Corporates                                     | -                 | -                  
|Asset Backed Securities (excluding
      CDOs) | -                 | -                  
|High Yield (see Section 3.2.8)                 | 0.5               | 0.1                
|                                               | ___________       | ___________        
|Total debt securities                          | 0.5               | 0.1                
|                                               | ___________       | ___________        

Mark to market (MTM) analysis

|                                                                 | At 30 June
      2004 | At 31 December
      2003
|---------------------------------------------------------------- | --------------------- | -------------------------
|                                                                 | £ m                   | £ m                      
|                                                                 | ___________           | ___________              
|Debt securities and related
      derivatives                    | 562                   | 1,184                    
|Less: Provisions (1)                                             | (103)                 | (178)                    
|                                                                 | ___________           | ___________              
|Book value of debt securities and related
      derivatives      | 459                   | 1,006                    
|                                                                 | ___________           | ___________              
|Market value of debt securities and related
      derivatives    | 459                   | 1,006                    
|                                                                 | ___________           | ___________              
|Total MTM deficit on debt securities &
      related derivatives | -                     | -                        
|                                                                 | ___________           | ___________              

(1) Including £103m
(December 2003: £178m) of specific provisions, and £nil (December 2003:£nil) of
general provisions.

Debt securities of £0.5bn represent the
High Yield securities that are part of the Newark collateralised bond
obligation.



3.2.5: Loan portfolio

|                           | At 30 June 2004   | At 31 December
  2003
|-------------------------- | ----------------- | ---------------------
|                           | Assets
      £ bn | RWAs
      £ bn      
|                           | ___________       | ___________          
|Infrastructure             | 0.4               | 0.4                  
|Project Finance:           |                   |                      
|- Real Estate              | 0.2               | 0.2                  
|- Other                    | 0.2               | 0.2                  
|Structured Finance lending | 0.1               | 0.1                  
|                           | ___________       | ___________          
|Total loan portfolio       | 0.9               | 0.9                  
|                           | ___________       | ___________          

Mark to market (MTM) analysis

|                                                                           | At 30 June 2004 | At 31 December
2003
|-------------------------------------------------------------------------- | --------------- | -------------------
|                                                                           | £ m             | £ m                
|                                                                           | ___________     | ___________        
|Loan portfolio and related
      derivatives                               | 1,096           | 2,360              
|Less: Provisions (1)                                                       | (243)           | (333)              
|                                                                           | ___________     | ___________        
|Book value of loan portfolio and related
      derivatives                 | 853             | 2,027              
|                                                                           |                 |                    
|Market value of loan portfolio and related
      derivatives               | 853             | 1,961              
|                                                                           | ___________     | ___________        
|Total unrealised MTM deficit on loan portfolio
      & related derivatives | -               | (66)               
|                                                                           | ___________     | ___________        

(1)Including £90m (December
2003: £160m) of specific provisions and £153m (December 2003: £173m) of general
provisions.

The loan portfolio of £0.9bn is down
55% from December 2003 with sales across all portfolios, in particular Project
Finance.

The fall in deficit from the 2003
year-end position of £66m is due to a combination of asset and swap disposals,
further provisioning and improvement in estimated fair value.

3.2.6: Leasing

|                 | At 30 June 2004   | At 31 December
2003
|---------------- | ----------------- | -------------------
|                 | Assets
      £ bn | RWAs
      £ bn    
|                 | ___________       | ___________        
|Finance leases   | 1.5               | 0.3                
|Operating leases | 2.6               | 2.4                
|                 | ___________       | ___________        
|Total leases     | 4.1               | 2.7                
|                 | ___________       | ___________        

The finance leasing portfolio is
predominantly high quality with over 70% of exposure being to counterparties
rated AA or better. The operating lease portfolio principally represents assets
held in Porterbrook (£2.0bn) and aircraft leases (£0.4bn). The value of the
aircraft leasing business has been written down to net asset value based on
current market conditions. The market value of Porterbrook has not yet been
confirmed by a sales process and therefore may well differ from the holding
value. Porterbrook 's profit for the 6 months to June 2004 was £31m (Half 1
2003: £39m)

The increase in operating leases in the
six months to 30 June 2004 was due to drawdowns under existing lease commitments
exceeding repayments.

3.2.7: Wholesale Bank credit exposure analysis

The analysis that follows defines total
exposures as being net of specific provisions and includes total undrawn
commitments. In total, these comprise £122m and £27m respectively. Approximately
52% of the Wholesale Banking exposures in the PBU has external ratings.

Credit exposures by credit rating

|                           | At 30 June 2004        | At 31 December
  2003                         
|-------------------------- | ---------------------- | ----------------------------------------------
|                           | Average
      Exposure | Average
      of Top 5
      exposures
    (2)
|                           | £ m                    | £ m                                           
|                           | ___________            | ___________                                   
|AAA                        | 28.9                   | 60.8                                          
|AA                         | 32.4                   | 174.7                                         
|A                          | 12.1                   | 50.7                                          
|BBB                        | 24.6                   | 133.1                                         
|                           | ___________            | ___________                                   
|Total investment grade     |                        |                                               
|                           |                        |                                               
|BB                         | 14.6                   | 34.1                                          
|B                          | 9.7                    | 16.8                                          
|CCC                        | 11.7                   | 32.9                                          
|                           | ___________            | ___________                                   
|Total sub-investment grade |                        |                                               
|                           |                        |                                               
|Equity                     | n/a                    | n/a                                           
|                           | ___________            | ___________                                   
|Total exposure(1)          |                        |                                               
|                           | ___________            | ___________                                   

(1)Total exposure of £4.0bn
is £1.5bn lower than total assets. This results mainly from the exposure amounts
including amounts due from leasing counterparties rather than the asset value of
leasing businesses and the small exposure in respect of the Newark Junior note
rather than the assets held within the structure.

(2) In some instances there
are now less than 5 individual counterparties. In these cases, a true average is
reported, which results in an apparent disconnect between the average of the Top
5 and the total exposure.

Note: Equity exposures included a small
balance in respect of the Newark junior note are included in debt securities
analysis in Section 3.2.8.

Total exposures reduced by £2.1bn to
£4.0bn since December 2003. There continues to be exposure reductions across all
ratings, with notable reductions in asset-backed securities, finance leasing,
project finance and infrastructure finance.

Sub-investment grade exposures were
reduced by £0.7bn. The most significant movements were in project finance and
asset-backed securities, including aircraft asset backed securities.

The majority of the remaining private
equity portfolio was sold in the first half of 2004.

AAA, AA and A grade by exposure type

|                                 | At 30 June 2004                            | At 31 December
  2003
|-------------------------------- | ------------------------------------------ | ---------------------
|                                 | Average
      of Top 5
      exposures (1) | Total
      exposure 
|                                 | £ m                                        | £ bn                 
|                                 | ___________                                | ___________          
|Banks and Financial Institutions | 174.7                                      | 1.5                  
|Sovereign                        | 109.1                                      | 0.1                  
|Corporates                       | 60.5                                       | 0.4                  
|Asset Finance                    | 34.9                                       | 0.2                  
|ABS / MBS                        | 9.8                                        | -                    
|                                 | ___________                                | ___________          
|Total exposure                   |                                            | 2.2                  
|                                 | ___________                                | ___________          

(1) In some instances there
are now less than 5 individual counterparties. In these cases, a true average is
reported, which results in an apparent disconnect between the average of the Top
5 and the total exposure.

Exposure to AAA to A graded investments
fell by 27% to £2.2bn (December 2003: £3.0bn). The most significant change was
in finance leasing due to the sale of a number of large exposures. This has
caused a reduction in exposures for corporates and banks and financial
institutions.

BBB grade by exposure type

|                                 | At 30 June 2004           | At 31 December
  2003                     
|-------------------------------- | ------------------------- | ------------------------------------------
|                                 | Specific
      provisions | Average
      of Top 5
      exposures (1)
|                                 | £ m                       | £ m                                       
|                                 | ___________               | ___________                               
|Banks and Financial Institutions | -                         | -                                         
|Corporates                       | -                         | 2.4                                       
|Asset Finance                    | -                         | 133.1                                     
|ABS / MBS                        | -                         | 44.5                                      
|                                 | ___________               | ___________                               
|Total exposure                   | -                         |                                           
|                                 | ___________               | ___________                               

(1) In some instances there
are now less than 5 individual counterparties. In these cases, a true average is
reported, which results in an apparent disconnect between the average of the Top
5 and the total exposure.

Exposures to BBB-graded investments
fell by 23% to £1.0bn (December 2003: £ 1.3bn) during the first 6 months of
2004. This reduction has been driven primarily by sales of asset finance assets,
predominantly project and infrastructure finance.

Credit exposures by sector

|At 30 June 2004                               | Specific
      Provisions | Average
      of Top 5
      exposures |  | Investment
      Grade | Sub-
      Investment
      Grade | Total
      (net of
      provisions)
|--------------------------------------------- | ------------------------- | -------------------------------------- |  | ---------------------- | --------------------------------- | -------------------------------------
|                                              | £ m                       | £ m                                    |  | £ bn                   | £ bn                              | £ bn                                 
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Banks and Financial Institutions              | -                         | 174.7                                  |  | 1.5                    | -                                 | 1.5                                  
|Sovereign                                     | -                         | 109.1                                  |  | 0.1                    | -                                 | 0.1                                  
|Corporates:                                   |                           |                                        |  |                        |                                   |                                      
|- Utilities, energy & natural
      resources | -                         | 69.4                                   |  | 0.3                    | -                                 | 0.3                                  
|- Aero, defence & airlines                    | -                         | 13.8                                   |  | -                      | 0.1                               | 0.1                                  
|- Manufacturing & transport                   | -                         | 3.0                                    |  | -                      | -                                 | -                                    
|- Other                                       | -                         | 25.6                                   |  | 0.1                    | -                                 | 0.1                                  
|Asset Finance:                                |                           |                                        |  |                        |                                   |                                      
|- Project Finance                             | 78                        | 22.9                                   |  | -                      | 0.2                               | 0.2                                  
|- Property                                    | 3                         | 41.3                                   |  | 0.2                    | -                                 | 0.2                                  
|- Infrastructure Finance                      | 29                        | 53.7                                   |  | 0.3                    | 0.1                               | 0.4                                  
|- Operating Leasing                           | -                         | 127.3                                  |  | 0.7                    | 0.2                               | 0.9                                  
|ABS/MBS:                                      |                           |                                        |  |                        |                                   |                                      
|- Asset / Mortgage Backed                     | 9                         | 20.1                                   |  | -                      | -                                 | -                                    
|- CDOs                                        | 8                         | -                                      |  | -                      | -                                 | -                                    
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Credit exposure                               | 127                       |                                        |  | 3.2                    | 0.6                               | 3.8                                  
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Equity-related (excl. undrawns)               | 80 (1)                    |                                        |  | -                      | 0.2                               | 0.2                                  
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Total exposure                                | 207                       |                                        |  | 3.2                    | 0.8                               | 4.0                                  
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          



|At 31 December 2003                           | Specific
      Provisions | Average
      of Top 5
      exposures |  | Investment
      Grade | Sub-
      Investment
      Grade | Total
      (net of
      provisions)
|--------------------------------------------- | ------------------------- | -------------------------------------- |  | ---------------------- | --------------------------------- | -------------------------------------
|                                              | £ m                       | £ m                                    |  | £ bn                   | £ bn                              | £ bn                                 
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Banks and Financial Institutions              | -                         | 181.8                                  |  | 1.7                    | -                                 | 1.7                                  
|Sovereign                                     | -                         | 128.2                                  |  | 0.3                    | -                                 | 0.3                                  
|Corporates:                                   |                           |                                        |  |                        |                                   |                                      
|- Utilities, energy & natural
      resources | -                         | 64.0                                   |  | 0.3                    | -                                 | 0.3                                  
|- Aero, defence & airlines                    | -                         | 20.6                                   |  | -                      | 0.1                               | 0.1                                  
|- Manufacturing & transport                   | -                         | 56.9                                   |  | 0.3                    | 0.1                               | 0.4                                  
|- Other                                       | -                         | 25.5                                   |  | 0.1                    | -                                 | 0.1                                  
|Asset Finance:                                |                           |                                        |  |                        |                                   |                                      
|- Project Finance                             | 155                       | 43.4                                   |  | 0.1                    | 0.6                               | 0.7                                  
|- Property                                    | 3                         | 45.7                                   |  | 0.2                    | 0.1                               | 0.3                                  
|- Infrastructure Finance                      | 22                        | 63.7                                   |  | 0.5                    | 0.1                               | 0.6                                  
|- Operating Leasing                           | -                         | 132.8                                  |  | 0.7                    | 0.1                               | 0.8                                  
|ABS/MBS:                                      |                           |                                        |  |                        |                                   |                                      
|- Asset / Mortgage Backed                     | 80                        | 42.5                                   |  | 0.1                    | 0.2                               | 0.3                                  
|- CDOs                                        | 8                         | 8.8                                    |  | -                      | -                                 | -                                    
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Credit exposure                               | 268                       |                                        |  | 4.3                    | 1.3                               | 5.6                                  
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Equity related (excl. undrawns)               | 331                       | (1)                                    |  | -                      | 0.5                               | 0.5                                  
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          
|Total exposure                                | 599                       |                                        |  | 4.3                    | 1.8                               | 6.1                                  
|                                              | ___________               | ___________                            |  | ___________            | ___________                       | ___________                          

(1) Balance includes £75m
(December 2003: £69m) specific provisions relating to the Newark collateralised
bond obligations.

Additional sector analysis

|Aircraft                           | At 30 June
      2004
      £ m | At 31 December
      2003
      £ m
|---------------------------------- | ------------------------------- | -----------------------------------
|                                   | ___________                     | ___________                        
|IEM                                | 108                             | 174                                
|Asset backed securities (ABS)      | -                               | 183                                
|Other (including operating
leases) | 80                              | 82                                 
|                                   | ___________                     | ___________                        
|                                   | 188                             | 439                                
|                                   | ___________                     | ___________                        

Overall, aircraft exposures (net of
provisions) fell by 57% to £188m. IEM Aircraft exposures fell from £174m to
£108m as a result of aircraft sales. All remaining Aircraft ABS exposures have
been disposed of during the first 6 months of 2004.

The IEM and Other credit exposures
above represent a credit exposure relating to the unexpired portion of the
current leases. The IEM leases are represented in the balance sheet at a net
book value of £275m.



|US and UK power lending                      | At 30 June
      2004
      £ m | At 31 December
      2003
      £ m
|-------------------------------------------- | ------------------------------- | -----------------------------------
|                                             | ___________                     | ___________                        
|UK                                           | 32                              | 221                                
|US                                           | 127                             | 350                                
|                                             | ___________                     | ___________                        
|                                             | 159                             | 571                                
|                                             | ___________                     | ___________                        
|Of which:                                    |                                 |                                    
|                                             |                                 |                                    
|Power projects lending on credit
      watch | 120                             | 360                                
|                                             | ___________                     | ___________                        

Within the Project Finance portfolio,
exposure to Power projects fell by 72% to £159m (December 2003: £571m). This
included a 86% fall in UK exposure and a 64% fall in US power exposure.

Credit exposures by region

|At 30 June 2004 | Investment
      Grade | Sub-investment
      Grade | Total      
|--------------- | ---------------------- | -------------------------- | -----------
|                | £ bn                   | £ bn                       | £ bn       
|                | ___________            | ___________                | ___________
|Europe          | 2.5                    | 0.5                        | 3.0        
|North America   | 0.6                    | 0.2                        | 0.8        
|Asia-Pacific    | 0.1                    | -                          | 0.1        
|Latin America   | -                      | 0.1                        | 0.1        
|                | ___________            | ___________                | ___________
|Total exposure  | 3.2                    | 0.8                        | 4.0        
|                | ___________            | ___________                | ___________



|At 31 December 2003 | Investment
      Grade | Sub-investment
      Grade | Total      
|------------------- | ---------------------- | -------------------------- | -----------
|                    | £ bn                   | £ bn                       | £ bn       
|                    | ___________            | ___________                | ___________
|Europe              | 3.4                    | 1.0                        | 4.4        
|North America       | 0.8                    | 0.6                        | 1.4        
|Asia-Pacific        | 0.1                    | 0.1                        | 0.2        
|Latin America       | -                      | 0.1                        | 0.1        
|                    | ___________            | ___________                | ___________
|Total exposure      | 4.3                    | 1.8                        | 6.1        
|                    | ___________            | ___________                | ___________

The majority of the £2.1bn fall in
exposure during 2004 occurred in European (£1.4bn) and North American (£0.6bn)
exposures. The fall in North American exposure is due to sales of project
finance and asset-backed securities, predominantly aircraft asset-backed
securities. The movement in European credit exposures is related to sales of
finance lease assets, project finance and asset-backed securities.

Sub-investment grade credit exposure

|                                   | At 30 June 2004           | At 31 December
  2003                         
|---------------------------------- | ------------------------- | ----------------------------------------------
|                                   | Specific
      provisions | Average
      of Top 5
      exposures
    (1)
|                                   | £ m                       | £ m                                           
|                                   | ___________               | ___________                                   
|Corporates                         | -                         | 16.4                                          
|Asset Finance                      | 110                       | 37.3                                          
|ABS / MBS                          | 17                        | -                                             
|                                   | ___________               | ___________                                   
|Credit exposure                    | 127                       |                                               
|                                   | ___________               | ___________                                   
|High yield                         | 75                        |                                               
|Private equity (excluding
undrawn) | 5                         |                                               
|                                   | ___________               | ___________                                   
|Total exposure                     | 207                       |                                               
|                                   | ___________               | ___________                                   

(1) In some instances there
are now less than 5 individual counterparties. In these cases, a true average is
reported, which results in an apparent disconnect between the average of the Top
5 and the total exposure.

Sub-investment grade exposures fell 56%
to £0.8bn. This was primarily driven by a £0.4bn reduction in Asset Finance, a
£0.2bn reduction in Asset Backed Securities and a £0.3bn reduction in Private
Equity.

3.2.8: High yield securities

|                                                                                     | At 30 June
      2004
      £ bn | At 31 December
      2003
      £ bn
|------------------------------------------------------------------------------------ | -------------------------------- | ------------------------------------
|                                                                                     | ___________                      | ___________                         
|Opening asset balance (net of
      provisions)                                      | 0.7                              | 0.8                                 
|Less:                                                                                |                                  |                                     
|Asset disposals (net
ofprovisions)                                                   | (0.2)                            | (0.1)                               
|                                                                                     | ___________                      | ___________                         
|High yield securities assets                                                         | 0.5                              | 0.7                                 
|                                                                                     |                                  |                                     
|Amount covered by credit protection through the
      Collateralised Bond Obligation | (0.4)                            | (0.6)                               
|                                                                                     | ___________                      | ___________                         
|High yield securities
exposure                                                       | 0.1                              | 0.1                                 
|                                                                                     | ___________                      | ___________                         

The net exposure to the Junior Note of
the Newark collateralised bond obligation is £24m. Depending on portfolio
performance, Abbey remains liable to extra margin contribution of up to £41m in
respect of Newark.

3.3: Motor Finance and Litigation Funding

|                                                 | At 30 June 2004   | At 31 December
2003
|------------------------------------------------ | ----------------- | -------------------
|                                                 | Assets
      £ bn | RWAs
      £ bn    
|                                                 | ___________       | ___________        
|Motor Finance and Litigation Funding
      (1)   | 1.3               | 1.4                
|                                                 | ___________       | ___________        
|Total Motor Finance and Litigation
      Funding | 1.3               | 1.4                
|                                                 | ___________       | ___________        

(1)Motor Finance and
Litigation Funding RWAs exceed the value of assets due to the regulatory
treatment of the joint venture with Peugeot, whereby 100% of assets are included
for regulatory purposes.

Motor Finance is closed to new
business, with further reductions in asset balances expected over the next two
years.

The loss for the period of £(36)m
relates predominantly to additional provisioning required in Litigation Funding
as part of the wind down process.

There remains a risk of further
provisioning in this business, dependent on credit recovery developments.

3.4: International life assurance businesses

|                           | 6 months to30 June2004£
      m | 6 months to31 December
      2003£ m | 6 months to30 June2003£
      m
|-------------------------- | ------------------------------- | ------------------------------------ | -------------------------------
|                           | ___________                     | ___________                          | ___________                    
|Profit / (loss) before tax | 1                               | 7                                    | (33)                           
|Embedded value asset       | 105                             | 192                                  | 217                            
|New business premiums      | 2                               | 63                                   | 163                            
|                           | ___________                     | ___________                          | ___________                    

On 1 January 2004, Scottish Provident
International was transferred into the ongoing Personal Financial Services (PFS)
business following the decision to retain the business as an integral part of
the offering. The 2003 results have not been restated for the transfer, though
the business accounted for £8m of profit, £71m of the embedded value asset and
£57m of the new business reflected above. The Dublin based international life
assurance businesses remain in the PBU, with a profit before tax in Scottish
Mutual International of £1m (Half 1 2003: loss £(10)m, Half 2 2003 loss £(3)m)
improving due to the 2003 result being impacted by non-recurring rationalisation
costs.

3.5: European Operations, and other

|                            | 6 months to30 June2004£
      m | 6 months to31 December
      2003£ m | 6 months to 30 June2003£
      m
|--------------------------- | ------------------------------- | ------------------------------------ | --------------------------------
|                            | ___________                     | ___________                          | ___________                     
|Profit / (loss) before tax: |                                 |                                      |                                 
|- Abbey National Bank Italy | 1                               | 52                                   | 2                               
|- Abbey National France     | 1                               | 2                                    | 6                               
|- Other                     | (9)                             | (33)                                 | (3)                             
|                            | ___________                     | ___________                          | ___________                     
|(Loss) / profit before tax  | (7)                             | 21                                   | 5                               
|                            | ___________                     | ___________                          | ___________                     
|                            | At 30 June2004£
      bn        | At 31 December 2003£
      bn        | At 30 June2003£
      bn        
|Total assets:               | ___________                     | ___________                          | ___________                     
|- Abbey National Bank Italy | -                               | -                                    | 2.6                             
|- Abbey National France     | 1.5                             | 1.8                                  | 1.5                             
|- Other                     | -                               | 0.1                                  | -                               
|                            | ___________                     | ___________                          | ___________                     
|Total assets                | 1.5                             | 1.9                                  | 4.1                             
|                            | ___________                     | ___________                          | ___________                     

The profit of Abbey National Bank Italy
of £52m in December 2003 principally reflects the profit on sale to Unicredito
Italiano SpA on 31 December 2003. The sale of Royal Saint Georges Banque was
completed in the first half of 2004. The remaining assets relate to Abbey
National France, which continues to trade profitably. The 'other' loss in the
prior period represents further product related provisioning, combined with
costs incurred in closing certain other small businesses.

4. CAPITAL DISCLOSURES

4.1: Group capital

|                                                     | At
      30 June 2004 | At
      31 December 2003 | At
      30 June 2003
|---------------------------------------------------- | --------------------- | ------------------------- | ---------------------
|Balance Sheet:                                       | £ m                   | £ m                       | £ m                  
|                                                     | ___________           | ___________               | ___________          
|Distributable reserves and shareholders'
      funds | 5,073                 | 4,961                     | 5,905                
|Life assurance reserves -
      non-distributable    | 334                   | 353                       | 115                  
|Less: Goodwill recognised
      (1)                  | (1,065)               | (1,068)                   | (1,001)              
|                                                     | ___________           | ___________               | ___________          
|Equity Tier 1                                        | 4,342                 | 4,246                     | 5,019                
|Tier 1 capital instruments                           | 1,946                 | 1,957                     | 2,159                
|                                                     | ___________           | ___________               | ___________          
|Total Tier 1 capital                                 | 6,288                 | 6,203                     | 7,178                
|                                                     |                       |                           |                      
|Undated subordinated debt                            | 2,718                 | 2,976                     | 3,054                
|Dated subordinated debt                              | 2,410                 | 2,513                     | 2,737                
|General provisions and other                         | 504                   | 531                       | 435                  
|                                                     | ___________           | ___________               | ___________          
|Total Tier 2 capital                                 | 5,632                 | 6,020                     | 6,226                
|                                                     |                       |                           |                      
|Less:                                                |                       |                           |                      
|PFS: Investments in life assurance
      businesses  | (3,543)               | (3,521)                   | (3,611)              
|PFS: Non-life assurance
businesses                   | (134)                 | (93)                      | (170)                
|PBU                                                  | (456)                 | (476)                     | (572)                
|                                                     | ___________           | ___________               | ___________          
|Total supervisory deductions                         | (4,133)               | (4,090)                   | (4,353)              
|                                                     | ___________           | ___________               | ___________          
|Total regulatory capital                             | 7,787                 | 8,133                     | 9,051                
|                                                     | ___________           | ___________               | ___________          
|Risk Weighted Assets:                                |                       |                           |                      
|                                                     |                       |                           |                      
|Personal Financial Services                          | 51,638                | 52,158                    | 48,291               
|Portfolio Business Unit                              | 5,931                 | 8,997                     | 17,651               
|                                                     | ___________           | ___________               | ___________          
|Total Abbey risk weighted
    assets                 | 57,569                | 61,155                    | 65,942               
|                                                     | ___________           | ___________               | ___________          
|Banking book                                         | 52,872                | 55,873                    | 60,150               
|Trading book                                         | 4,697                 | 5,282                     | 5,792                
|                                                     | ___________           | ___________               | ___________          
|Total Abbey risk weighted
    assets                 | 57,569                | 61,155                    | 65,942               
|                                                     | ___________           | ___________               | ___________          
|Capital ratios:                                      |                       |                           |                      
|                                                     |                       |                           |                      
|Risk asset ratio (%)                                 | 13.5%                 | 13.3%                     | 13.7%                
|Tier 1 ratio (%)                                     | 10.9%                 | 10.1%                     | 10.9%                
|Equity Tier 1 ratio (%)                              | 7.5%                  | 6.9%                      | 7.6%                 
|Banking equity Tier 1 ratio (%)                      | 5.0%                  | 4.7%                      | 5.3%                 
|                                                     | ___________           | ___________               | ___________          

(1) Goodwill recognised in
the table above of £1,065m differs to that quoted on a statutory basis of £946m,
largely as it is deducted from Tier 1 in full on acquisition, whilst the
statutory treatment is to amortise the charge over a number of years. The main
driver of the decrease since December 2003 was the disposal of Royal Saint
Georges Banque.

Balance Sheet

At 30 June 2004, the Equity Tier 1
ratio and the risk asset ratio were 7.5% and 13.5% respectively. The increase in
the Equity Tier 1 ratio was primarily due to the reduction in Portfolio Business
Unit (PBU) risk weighted assets.

Tier 1 capital increased by £85m to
£6,288m, driven by the equity generated from full year 2003 scrip elections and
the return to profit on a group basis, partly offset by the declaration of the
interim dividend. Tier 1 capital includes a £334m non-distributable reserve,
representing income from long-term assurance businesses recognised in the profit
and loss account, but not distributed by the long-term assurance funds.

The decrease in Tier 2 capital of £388m
was principally due to two subordinated debt issues being called in April (7%
$250m issue) and June (7.25% $150m issue) respectively. The successful reduction
in size of the PBU provides sufficient funding flexibility to not require
replacement of these issues, resulting in a saving of approximately £3m of
interest payments in 2004 and c£6m in future years.

Supervisory deductions primarily
represent capital invested in non-banking businesses, mainly the equity
investment and retained earnings in life assurance and insurance companies. The
£43m increase in the six months largely reflects the life assurance profit after
tax including £24m of embedded value charges and rebasing and the unwind of
special purpose vehicles in the PBU.

Risk weighted assets (RWAs)

Personal Financial Services RWAs were
£520m lower than at 31 December 2003. This principally reflects growth in the
mortgage asset (net of securitisations) of approximately. £300m, being more than
offset by a £875m decrease relating to the sale of the Abbey Business asset and
leasing companies in June.

RWAs in the Portfolio Business Unit
have decreased by £3.1bn reflecting the continued asset disposals process.

Reconciliation of Equity Tier 1

|                                                                        | £ m         | %          
|----------------------------------------------------------------------- | ----------- | -----------
|                                                                        | ___________ | ___________
|Equity Tier 1 At 1 January
      2004                                   |             | 6.9        
|                                                                        |             |            
|Equity impacts:                                                         |             |            
|- Profit after tax (1)                                                  | 215         | +0.4       
|- Dividends and other (2)                                               | (119)       | -0.2       
|                                                                        | ___________ | ___________
|                                                                        | 96          | +0.2       
|Risk weighted asset impacts:                                            |             |            
|- Personal Financial Services asset growth
      (excl. securitisation) | 1,655       | -0.2       
|- Securitisation (net of
    roll-offs)                                 | (1,300)     | +0.1       
|- PFS business sales                                                    | (875)       | +0.1       
|- PBU business and asset sales                                          | (3,066)     | +0.4       
|                                                                        | ___________ | ___________
|                                                                        | (3,586)     | +0.4       
|                                                                        |             | ___________
|Equity Tier 1 At 30 June 2004                                           |             | 7.5        
|                                                                        |             | ___________

(1)Profit after tax for
regulatory capital purposes differs from the statutory figures for a number of
reasons. Firstly, it excludes goodwill amortisation, as goodwill is deducted
from Tier 1 in full on acquisition. Secondly, the regulatory group structure
excludes certain non-banking entities, resulting in a slightly different tax
charge to that for the statutory group.

(2) Dividends and other
include the net impact of ordinary dividends, preference dividends, scrip
dividends and movements in minority interests (including joint ventures).

Potential impact of life assurance on
Equity Tier 1

The following analysis illustrates the
impact on Abbey's equity Tier 1 ratio assuming the capital invested in the
Long-Term Assurance business (per supervisory deductions) were supported by
Group capital in the same proportion as its banking businesses (c.36% equity) -
rather than being treated as a deduction from total capital as required by
current FSA regulations.

|                                                                          | Balance Sheet
      £ m | Equity Tier 1
      %
|------------------------------------------------------------------------- | ----------------------- | ---------------------
|                                                                          | ___________             | ___________          
|Equity Tier 1 as
      reported                                           | 4,342                   | 7.5%                 
|                                                                          |                         |                      
|Less:                                                                     |                         |                      
|Illustrative equity funded element of life
      assurance investment (1) | (1,424)                 | (2.5)%               
|                                                                          | ___________             | ___________          
|Banking Equity Tier 1 ratio                                               | 2,918                   | 5.0%                 
|                                                                          | ___________             | ___________          

(1) Calculated based on the
total capital invested in the life assurance businesses of £3,910m.

The banking equity Tier 1 ratio
increased to 5.0% (December 2003: 4.7%), primarily driven by the movements in
Tier 1 capital and risk weighted assets and deductions noted above.



Portfolio Business Unit (PBU) -
notional equity release

|At June 2004                                                          | Assets
      £ bn | RWAs
      £ bn
|--------------------------------------------------------------------- | ----------------- | ---------------
|                                                                      | ___________       | ___________    
|Balance at 31 December 2002                                           | 60.0              | 32.7           
|Balance at 30 June 2004                                               | 8.3               | 5.9            
|                                                                      | ___________       | ___________    
|Movement                                                              | 51.7              | 26.8           
|                                                                      |                   |                
|Gross notional equity release @ equity Tier 1
      ratio of 6.4% (1) |                   | 1.7            
|                                                                      |                   |                
|Plus: Impact of First National sale
      (2)                         |                   | 0.2            
|Less: Other PBU losses after tax (@ 19.2%)
      (3)                  |                   | (0.7)          
|                                                                      | ___________       | ___________    
|Net notional equity release                                           |                   | 1.2            
|                                                                      | ___________       | ___________    

(1)Abbey reported equity
Tier 1 ratio at 31 December 2002

(2) Represents goodwill no
longer deducted from capital.

(3) The blended effective
tax rate for the 18 months to 30 June 2004 for the PBU is 19.2%.

The table above provides an indicative
calculation of the equity released to the centre through the PBU wind-down
process.

The cumulative equity release is
estimated at £1.2bn. Asset disposals in the first 6 months of 2004 have been at
prices broadly in line with written down values, and together with the impact of
risk weighted asset reduction resulted in a further £0.2bn equity release.

The position as regards the residual
debt security and loan portfolios is contained in the mark to market disclosures
in sections 3.2.4 and 3.2.5 respectively. In addition, the capital release does
not reflect potential gains or losses from Porterbrook and the French mortgage
business, but is after provisions against the remaining aircraft leasing
positions, where book value has been reduced down to management's estimate of
realisable value in current market conditions.

4.2: Life assurance capital - existing statutory
basis

Value of long-term assurance business

|                                                                     | At
      30 June 2004 | At
      31 December 2003
|-------------------------------------------------------------------- | --------------------- | -------------------------
|                                                                     | £ m                   | £ m                      
|                                                                     | ___________           | ___________              
|Discounted value of future
profits                                   | 1,286                 | 1,171                    
|Net assets held by long-term assurance
      funds                   | 949                   | 1,101                    
|                                                                     | ___________           | ___________              
|Embedded value of the long-term assurance
      business             | 2,235                 | 2,272                    
|                                                                     |                       |                          
|Contingent loans to Scottish Provident's with
      profits sub fund | 638                   | 618                      
|                                                                     | ___________           | ___________              
|Total value of long-term assurance
      business                    | 2,873                 | 2,890                    
|                                                                     |                       |                          
|Contingent loan to Scottish
Mutual                                   | 591                   | 575                      
|Other net assets of shareholder's
      funds                        | 446                   | 427                      
|                                                                     | ___________           | ___________              
|Total invested in Life Assurance
      businesses                    | 3,910                 | 3,892                    
|                                                                     | ___________           | ___________              

The discounted value of future profits
(DVFP) represents the present value of the surplus expected to emerge in the
future from the business in-force. The increase in DVFP since December 2003 of
£115m to £1,286m was mainly driven by the growth in new business sales in
Scottish Provident partly offset by policy maturities and stronger levels of
surrenders following recent negative news flow.

Net assets of the shareholders interest
in the long-term business fund of £949m were £152m below the December 2003
level, impacted by the transfer of funds to the shareholder fund.

The Scottish Provident contingent loan
was created as part of the de-mutualisation scheme, though it effectively
represents the DVFP of the non-profit business fund. However, the repayment of
the loan flows through the with profit sub-fund, and is therefore subject to its
statutory solvency requirements. The increase in balance to £638m (December
2003: £618m) represents the accrual of interest on the loan for the six months.

The contingent loan to Scottish Mutual
was originally created to provide statutory solvency support for the with profit
business. The value of the contingent loan has increased by the value of
interest accrued in the six months to £591m.

Other net assets of the shareholders
funds have remained broadly flat at £446m.

A reconciliation between the opening
and closing embedded value of the long-term assurance business is as follows:

|Movements in embedded value of the long-term
      assurance business  | £ m        
|---------------------------------------------------------------------- | -----------
|                                                                       | ___________
|Opening value as at 1
      January                                    | 2,272      
|                                                                       |            
|Transfers (to) / from shareholders'
      funds                        | (29)       
|                                                                       |            
|Increase in value of the long-term assurance
      business before tax | 53         
|Tax on increase in value of the long-term
      assurance business     | (42)       
|                                                                       | ___________
|Increase in value of the long-term assurance
      business after tax  | 11         
|Capital injections from Abbey                                          | -          
|Dividends paid to Abbey                                                | (19)       
|                                                                       | ___________
|Closing value as at 30 June
    2004                                   | 2,235      
|                                                                       | ___________

Life assurance cash flows

|                          | At
      30 June 2004 | At
      31 December 2003
|------------------------- | --------------------- | -------------------------
|                          | £ m                   | £ m                      
|                          | ___________           | ___________              
|Injections made           | 3                     | 343                      
|Dividends paid to Group   | (21)                  | (181)                    
|                          | ___________           | ___________              
|Net cash flows from Group | (18)                  | 162                      
|                          | ___________           | ___________              

Intercompany flows to and from Group
incurred during the general course of business, such as interest, centrally
based IT services and sales commissions for branch-based products, are excluded
from the table above.

During the first six months of 2004,
capital injections into the life assurance businesses were minimal, while £21m
of dividends was paid to the Group.

Estimated life assurance ratios

|                 | At 30 June 2004 | At 31 December 2003
      (1)
|---------------- | --------------- | -----------------------------
|                 | ANL             | SMA                          
|                 | %               | %                            
|                 | ___________     | ___________                  
|Free asset ratio | 8.9             | 2.5                          
|Solvency ratio   | 295             | 167                          
|                 | ___________     | ___________                  

(1) The solvency ratios for
December 2003 have been restated to reflect the final position based on returns
to the Financial Services Authority.

Reconciliation of movements in solvency
ratios

|                                   | As at 30 June
2004
|---------------------------------- | ------------------
|                                   | ANL               
|                                   | %                 
|                                   | ___________       
|Opening solvency ratio             | 189               
|                                   |                   
|Impacted by:                       |                   
|- New business written             | -12               
|- Net capital injections           | -22               
|- Market movements                 | -                 
|- Change in reserving
requirements | +140              
|                                   | ___________       
|Closing solvency ratio             | 295               
|                                   | ___________       

The increase in the solvency ratio for
Abbey National Life to 295% (December 2003: 189%) results from a switch of
assets deemed as inadmissible at the end of 2003 into admissible (as allowed by
the FSA), a lower resilience reserve requirement, profit arising from
subsidiaries and a lower required minimum margin. This has been partly offset by
the impact of new business strain and the payment of a dividend paid back to
Abbey.

Scottish Mutual's solvency ratio has
increased slightly to 167%. New protection business has created a strain on the
fund over the period, with the profit from the back book and a reduction in the
required minimum margin largely offsetting.

Scottish Provident has increased its
solvency to 278% with a small positive due to movements in assets and
liabilities, profit from the back book and the positive impact on statutory
reserves of reassuring immediate annuity business.



4.3: Life assurance capital - pro-forma
new CP 195 basis (1)

Value of long-term assurance business

In July, Abbey announced the completion
of its review of Scottish Mutual's and Scottish Provident's with profit funds.
This review included an assessment of the capital requirements and the ongoing
management of the funds. In summary the result of this review and subsequent
agreement with the FSA was as follows:

> on a pro-forma basis, both
with profit funds are in balance on a realistic basis as calculated under
proposed FSA regulations;

> no incremental capital or
adverse profit impact over and above that already reported;

> both the Scottish Mutual and
Scottish Provident contingent loans have been repaid;

> a significant non-refundable
contribution to the Scottish Mutual with profit funds made, offset by a release
of provisions previously raised;

> shareholders to provide an
amount of the risk based capital - to be held outside of the with profit funds;
and

> the hedging programme
extended and moved into the with profit funds to allow them to stand
independently and make them more secure for all policyholders.

The table below details on a pro-forma
basis, the impact of the review in terms of the total amount of capital invested
in the life assurance businesses. The recently issued policy statement 04/16 has
not been reflected in this section, but it is not expected to have a material
impact on the position.

|                                                         | At
      30 June 2004 | At
      31 December 2003
|-------------------------------------------------------- | --------------------- | -------------------------
|                                                         | £ m                   | £ m                      
|                                                         | ___________           | ___________              
|Discounted value of future profits
      (DVFP)          | 1,717                 | 1,605                    
|Net assets held by long-term business
      funds        | 1,087                 | 1,236                    
|                                                         | ___________           | ___________              
|Embedded value of the long-term assurance
      business | 2,804                 | 2,841                    
|                                                         |                       |                          
|Net assets held by the shareholder's
      funds         | 1,106                 | 1,051                    
|                                                         | ___________           | ___________              
|Total invested in Life Assurance
      businesses        | 3,910                 | 3,892                    
|                                                         | ___________           | ___________              

Contingent loans of £1,229m within
Scottish Mutual (£591m) and Scottish Provident (£638m) have been repaid and
restructured with:

> a DVFP in Scottish Provident
of £431m;

> an increase in net assets
held in the long-term business fund of £138m; and

> an increase of £660m in net
assets of the shareholder's funds.

Split of invested shareholder capital

|                                                 |  | 6 months to
      30 June 2004
|------------------------------------------------ |  | ------------------------------
|                                                 |  | £ m                           
|                                                 |  | ___________                   
|Closed with profits business                     |  | 979                           
|Ongoing businesses                               |  | 1,483                         
|Unallocated Long-Term Business Fund
      (LTBF) |  | 237                           
|Unallocated Shareholder Fund
(SHF)               |  | 1,106                         
|                                                 |  | ___________                   
|Total PFS                                        |  | 3,805                         
|                                                 |  |                               
|Total PBU                                        |  | 105                           
|                                                 |  | ___________                   
|Total life assurance                             |  | 3,910                         
|                                                 |  | ___________                   

(1) This analysis is a
pro-forma calculation provided for illustrative purposes only



Closed with profit business

> > the total capital invested
>   in the closed with profit businesses of £979m comprises £485m of DVFP and
>   £494m of regulatory capital.
>   > the regulatory capital is
>   based on the higher of Pillar 1 and Pillar 2 methodology. The regulatory
>   capital relating to Scottish Mutual based on Pillar 1 comprises £369m and for
>   Scottish Provident, based on Pillar 2 amounts to £125m.

Ongoing businesses

> > the ongoing business has a
>   total of £1,483m of shareholder capital invested in it. This comprises £1,232m
>   of DVFP and £251m of regulatory capital.
>   > the amount of regulatory
>   capital has been estimated based on a percentage of reserves and is provided
>   for illustrative purposes only.

Unallocated LTBF

> > the unallocated LTBF of
>   £237m represents all remaining net assets in the long-term business fund after
>   taking into account the regulatory capital requirements of the ongoing
>   business and closed with profit funds held principally in cash and bond.
>   > a proportion £56m of this
>   unallocated capital is currently earmarked for statutory support of the
>   Scottish Mutual with profit fund (based on current regulations), though we
>   anticipate this will not be necessary upon implementation of CP 195 on 1
>   January 2005.

Unallocated SHF

The amount of £1,106m represents the
net assets held in the shareholder fund, held principally in cash and bond.

PBU

The amount of £105m above relates the
whole investment in Scottish Mutual International.

Regulatory capital - realistic basis

|                    | 6 months to 30 June
    2004
|------------------- | ----------------------------
|                    | SMA                         
|                    | £ m                         
|                    | ___________                 
|Risk based capital  | 250                         
|Risk capital margin | 225                         
|                    |                             
|Coverage per CP 195 | 115%                        
|Coverage per ABI    | 325%                        
|                    | ___________                 

The coverage ratios calculated under the ABI guidance
is less stringent than the FSA basis as it does not include a lapse stress test.

5: ACCOUNTING AND REGULATORY CHANGE

5.1: Potential impact of International Accounting
Standards (IAS)

Abbey, in line with all companies
listed on exchanges in the European Union (EU), will be required to prepare its
financial statements in accordance with IAS from 1 January 2005. Some of the
standards applying from 1 January 2005 represent a significant change from UK
GAAP. At this stage the key remaining uncertainties relate to:

> > the interpretation of the
>   Insurance standard (IFRS 4); and
>   > whether the European Union
>   adopts IAS standards on financial instruments (IAS 32 and 39).

IAS requires the use of fair values to
a far greater extent than before, particularly in relation to financial
instruments and pensions. This is likely to create greater volatility in
reported results and have an associated impact on other financial measures.

A broad discussion of the main areas of
IAS impact was provided in the 2003 Annual Report and Accounts. The following
sections provide a more detailed discussion of the areas of greatest sensitivity
to Abbey, albeit in an environment of continuing uncertainty.

Key dates / process:

A companywide project with the
objective of ensuring full compliance with IAS in 2005 is now in the
implementation phase. Significant deliverables include making the necessary
changes to reporting systems to enable compliance with IAS, identifying all
required changes to accounting policies and ensuring the resultant solutions are
optimal from a business and financial perspective.

It is expected that the Financial
Services Authority (FSA) will use IAS as the start point for calculating
regulatory capital, with some adjustments as necessary. A consultation paper is
expected in Q3 2004, prior to a final approach being published in Q4 2004. The
Inland Revenue is adopting a similar approach, and is currently finalising its
guidance. It is presently unclear whether IAS statutory figures will be the
start point for Bank of England statistical reporting purposes but this is
expected to be finalised in Q4 2004.

There remains some doubt as to whether
the EU will ratify IAS 39, due to there being some opposition to specific
requirements on cash flow hedging and hedging of core deposits. Abbey is
monitoring these developments and will consider its position once the position
of the EU is known.

Whilst it is a long-term goal of the
IASB (International Accounting Standards Board) and its American counterpart,
the FASB, to achieve convergence between IAS and US GAAP, this situation is
unlikely to change in the short to medium term. However, the accounting standard
convergence project being jointly undertaken by the IASB and FASB is likely to
reduce these differences over time.

Key implementation dates are:

|Q4 2004:        | Regulatory and fiscal treatment of
      IAS finalised (with exception of life insurance companies)
|--------------- | ---------------------------------------------------------------------------------------------------
|1 January 2005: | IAS effective across the EU, and
      certain other jurisdictions such as Australia               
|June 2005:      | Exposure draft on Insurance
      Contracts (Phase II) due to be released by the IASB              
|July 2005:      | Interim financial statements
      produced in accordance with IAS                                 
|February 2006:  | 2005 annual financial statements
      produced in accordance with IAS                             
|2007            | Adoption of Phase II of the
      new insurance standard, succeeding IFRS4                         

5.1.1: Life assurance

Description:

Current Abbey financial statements
include the embedded values of our life businesses on the balance sheet, thus
recognising the discounted value of future profits (DVFP). The Phase II IAS
standard for Insurance (IFRS 4) was released in March 2004, prior to an exposure
draft of the comprehensive standard (Phase II) to be issued in June 2005.
Contracts that are largely investment in nature (i.e. do not contain significant
insurance risk) will now be accounted for as financial instruments under IAS 39.
The split between insurance and investment products is being finalised in the
light of the guidance in IFRS 4, and industry consensus on detailed
interpretation questions is only now beginning to emerge. The classification of
contracts which have an option to switch into with profits funds is open to
interpretation and this could have a significant impact as investment contracts
deemed to have a discretionary participation feature would not be subject to the
full impact of IAS 39.

Whilst DVFP will no longer be
recognised in respect of products classified as investment contracts, companies
may recognise particular deferred acquisition costs (DAC). However, the
acquisition costs that are deferrable under IAS are restricted. Consequently,
the DAC asset recognised under IAS will be significantly lower than DVFP
currently reported. In addition, actuarial liabilities relating to investment
contracts will be replaced by current unit values for unitised business and the
fair value of options and guarantees where applicable. IFRS 4 and IAS 39 also
contain loss recognition tests. Under IFRS 4, these ensure that estimated future
cash flows are sufficient to cover liabilities net of any DVFP and other
intangible assets. IAS 39 tests that the fair value of liabilities held are at
least as great as the surrender value of the contracts; this is sometimes
referred to as the deposit floor test.

More significant in the current year
are UK Accounting Standards Board (ASB) proposals on Life Assurance Accounting.
The ASB was tasked by HM Treasury to respond to criticisms of the financial
reporting by Life Assurance companies contained in the Penrose report into
Equitable Life. An Exposure Draft (FRED 34) was issued on 21 July 2004, to be
followed by publication of the final standard in November and implementation for
accounting periods ending on or after 23 December 2004. Implementation of the
ASB proposals in their current form might therefore apply to full year 2004
reporting.

Key proposals within the Exposure Draft
include a requirement to use realistic liabilities for the UK with profits
business and options and guarantees will be at fair value. In addition, the
Exposure Draft also includes amendments to embedded value for bancassurers such
as Abbey which could potentially disallow within DVFP the recognition of future
investment margins and any value attributed to the contractual rights to future
investment management fees that exceeds their fair value as implied by a
comparison with current fees charged by other market participants for similar
services. This analysis is based on current interpretation of guidance. This
view will develop as Abbey's IAS implementation programme progresses through the
rest of 2004 and as industry consensus develops.

Timescales:

IFRS 4, Insurance Contracts (Phase I),
will be implemented from 1 January 2005.

The IASB started work on the Phase II
project in May 2004 with the aim of completing an exposure draft by June 2005,
for adoption in 2007. This will re-examine, from basics, the fair value model
for insurance contracts and is aiming for a consistent basis of reporting for
insurance contracts for both insurance companies and bancassurers. It is
anticipated that fair value will be based upon discounted cash flow techniques,
although issues remain over which cash flows should be included and how the
margin should be adjusted for risk.

Impacts:

Profit and loss account

Under IFRS4, insurance contracts will
continue to be accounted for on an embedded value basis.

Under IAS39, earnings on investment
products will be recognised on an accruals basis, with a deferred acquisition
cost (DAC) asset amortised over the life of the product. This is likely to
reduce profits from new business in the year in which it is written, as the DVFP
of new business is replaced by earnings on an accruals basis, with limited
acquisition costs deferred. However, there will be an offset in terms of an
increase in earnings from the in-force book, which will be reflected on an
accruals basis, with the amortisation of the DAC asset. This compares to the
unwind of the discount rate on DVFP under embedded value accounting.

Equity

Overall, there will be a reduction in equity on
initial adoption as the DVFP on investment products recognised on writing new
business is reversed out, and replaced by a smaller DAC asset.

Capital

It is anticipated that impacts on the financial
statements will be reflected in Abbey's regulatory capital ratios.

5.1.2: Pensions

Description:

IAS19, Employee Benefits, is broadly
consistent with the current FRS 17 standard with pension fund asset valuation
based on current market values and the actual asset mix. The liabilities of
pension schemes will continue to be based on regular actuarial valuations,
discounted to present value at the prevailing long term AA Corporate Bond
return.

The profit and loss will be split
between an operating profits charge and the net charge/credit to finance income.
The operating profits charge mainly consists of current and past service costs,
which are the change in the present value of the defined benefit obligation
resulting from the employee's service in the current and prior period,
respectively. The charge/credit to finance income is the net of the expected
return on the pensions scheme assets and the unwind of the discount on the
pension scheme liabilities. Actuarial gains or losses, i.e. movements in the
surplus/deficit, are recognised in full through a separate statement of total
recognised income and expense (akin to the current Statement of Total Recognised
Gains and Losses).

Timescales:

Full implementation from 1 January
2005.

Impacts:

Profit and loss account

As with FRS17, the pension charge is
slightly higher than the present SSAP24, Accounting for Pension Costs, charge
due to the IAS requirement to discount liabilities at the prevailing long-term
AA Corporate Bond return, rather than an actuarially determined discount rate
per SSAP 24.

Equity

This depends to a large extent on
market conditions and will result in greater balance sheet volatility. On
initial adoption, any deficit (or surplus) in the pension schemes will be
charged (credited) to equity.

Capital

The FSA has not yet produced definitive
guidance on what form the regulatory capital adjustment for the pension fund
deficit will be. However, current understanding is that a deduction may be made
to equity equivalent to five years of pension fund deficit amortisation,
replacing the impact of the accounting treatment noted above.

5.1.3: Other issues affecting financial services

Whilst, in total, the following IAS
changes will impact Abbey's financial statements, individually they are not
expected to be material.

Hedge accounting

IAS39 requires derivatives to be
recognised at fair value, with changes in the valuation impacting the profit and
loss account and potentially resulting in significant earnings volatility. Hedge
accounting permissibility is much more restricted under IAS39 than at present
under UK GAAP.

Abbey's business model is being
redesigned to maximise the natural offsets between assets and liabilities and
compliant hedging strategies are being developed wherever possible for the
remainder. This aims to ensure that the overall objective of continuing to
provide an economic hedge for the bank's market risk exposures. These actions
should considerably reduce both the degree of equity and earnings impact, and
the volatility arising from IAS39. In the absence of these changes to the
business model, equity and earnings volatility could be significant.

Effective interest rate

IAS39 requires all origination fees and
related costs, including prepayment penalties, to be amortised over the expected
effective life of the product to which they relate. This is likely to result in
an increased charge against earnings due to: (i) Spreading introducer
commissions over a shorter period under IAS, and amortisation of these costs
which were not spread prior to 2002; and (ii) High loan-to-value fees being
spread over a shorter period under IAS.

Software capitalisation

IAS38 requires the capitalisation of
certain expenditure relating to software development costs, resulting in a small
Increase in equity on initial adoption due to a higher capitalised assets but
little impact on income.

Abbey Financial Markets

Little impact anticipated as the Abbey
Financial Markets business is already largely accounted for on a mark to market
basis, although there are some changes to detailed valuation rules. PBU assets
are expected to be minimal by the 2005, although IAS could impact Porterbrook as
noted below.

Assets leased to customers

IAS 16 and IAS17 requirements in
respect of the depreciation of operating lease assets appear similar to UK GAAP.
Abbey's current depreciation method results in a constant reported return on
assets through the life of the lease. Whilst there is still debate around the
methodology to be adopted, changing to a new depreciation method would reduce
earnings in the early years of the life of the operating lease, with increased
earnings in later years. This allocation of earnings to later years would result
in a reduction in equity on initial adoption. In particular, this would impact
the recognition of earnings from the operating leasing businesses, primarily
Porterbrook.

Preference shares

Under IAS 32, the classification of
preference shares and certain other Tier 1 capital instruments will change from
equity to liabilities. Consequently, coupon payments will move from
appropriation of profit to interest payable, impacting profit before tax by the
same amount but with no EPS impact.

Provisions

IAS39 eliminates general provisions,
and replaces them with a portfolio level provision, the level of which is
determined using an incurred loss model. This is likely to result in an increase
in earnings volatility, as portfolio provision levels will be more closely
linked to the current economic climate at the reporting date.

Dividend

The dividend cost will be accounted for
in the period incurred (i.e. paid) improving equity.

Taxation

Depends on both the final adjustments
to IAS and the, as yet unknown, rules the Inland Revenue will apply. It should
also be noted that life company tax is based on information in the FSA returns
and not on statutory accounts. Consequently, the impact depends on the way that
the returns are adapted to accommodate IAS, which is still subject to discussion
by the FSA and the Inland Revenue.

Deferred taxation

Under IAS 12, deferred taxation
provisioning is required in respect of assets revalued on acquisition, resulting
in a reduction in equity on initial adoption.



5.2: Potential impact of Basel II
Capital Accord

The new Basel Capital Accord (Basel II)
is a major amendment to the international standard on regulatory capital
adequacy. It will be enforced in Europe through the Capital Requirements
Directive (CRD) and in the UK through the credit and operational risk chapters
of the Integrated Prudential Source Book (IPSB). Basel II aligns the capital
measurement framework with sound contemporary practices in banking, promotes
improvements in risk management, and is intended to enhance financial stability.

The regulatory framework of Basel II is
built around 3 central concepts, or pillars:

> > Pillar 1 minimum capital
>   requirements: offers three alternative methods for calculating risk
>   weightings. The Standardised approach derives risk weightings from the
>   external ratings of borrowers, whilst the Foundation and Advanced Internal
>   Ratings Basis approaches place increasing emphasis on banks' internal rating
>   and risk control systems. Capital incentives are given to evolve to the third
>   approach. An additional charge is made for operational risk;
>   > Pillar 2 supervisory
>   review process: is intended to ensure that banks have adequate capital to
>   support all risks including risks that are not fully taken account in Pillar
>   1, such as interest rate risk, liquidity risk and credit concentration risk.
>   It also encourages banks to develop and use better risk management techniques
>   in monitoring and managing their risks;
>   > Pillar 3 market
>   discipline: disclosure requirements to allow the investor community to assess
>   a bank's risk profile under Basel II requirements.

Under the minimum capital rules of the
Accord (Pillar 1) there may be potential regulatory capital savings,
particularly for retail exposures. However, there are other regulatory
considerations, discussed in the sections below, which could offset these
potential benefits. Whilst greater clarity on the impact on Abbey's capital
position is not expected until 2005, the following sections provide further
explanation and build on the disclosure and commentary provided in the 2003
Annual Report and Accounts.

Key dates / process:

A major project is underway to prepare
Abbey for the new requirements and is currently on schedule to do so, assuming
there are no major changes to the draft proposals. The bank's strategic aim
continues to be to achieve The Advanced Internal Ratings-Based Approach (AIRB)
for credit risks for its material portfolios and to initially adopt the
Standardised Approach for operational risks, with the aim of moving to the
Advanced Measurement Approach (AMA) in due course. The Basel Committee have
recently announced two implementation dates; 31 December 2006 for Standardised,
Retail and Foundation Internal Ratings Based (IRB) approaches and 31 December
2007 for all advanced approaches.

Following the publication of the final
accord by the Basel Committee on 26 June and a draft CRD from the EU on 14 July,
the remaining key dates for the implementation of Basel II are:

| | Requirement to begin using AIRB
      models                           | - End 2004        
| | ---------------------------------------------------------------------- | ------------------
| | The IPSB "Jumbo CP" published by
      the FSA                         | - January 2005    
| | Application for IRB and AMA                                            | - July 2005       
| | EU Capital Requirements Directive
      finalised                      | - Second half 2005
| | Parallel Running Begins                                                | - Beginning 2006  
| | Implementation of Standardised,
      Retail and Foundation approaches | - End 2006        
| | Implementation of Advanced
      approach                              | - End 2007        



Implementation dates continue to be
highly controversial in Europe and, as a compromise, the EU has given banks the
option to continue under the current rules until the end of 2007. However, this
may still be subject to change as the Directive is not expected to be finalised
for another 12 to 18 months. HM Treasury supported by the FSA and the UK banks
are still stating their preference for a single implementation date at the end
of 2007.

5.2.1: Mortgage assets

Abbey's assets comprise mainly
residential mortgages, personal loans and bank accounts, which will fall within
the 'retail' asset class under Basel II.

Risk weights are calculated for
mortgages by estimating the long-run average probability of default and loss
given default from Abbey's internal data history. These parameters are then
mapped to the Basel definition of default. Mortgages currently attract a 50%
risk weighting (under Basel I definition) but this is expected to fall to
between 10% and 30% under Basel II depending on the default assumptions used. A
10% risk weighting could result from default levels based on forecast stressed
economic scenarios. A 30% risk weighting could reflect actual experience
including the early 1990s recession. Abbey's central expectation is for a circa
20% risk weighting.

The securitisation proposals continue
to be one of the few areas of Basel II that are still subject to a fundamental
review with the treatment expected to be a capital deduction. The latest
proposals indicate that the most aggressive approach would eliminate any
favourable regulatory capital treatment derived from current securitisation
programmes.

5.2.2: Life assurance and other capital
deductions

Capital deductions are likely to
continue to be calculated on the present basis, but could be deducted from Tiers
1 and 2 in equal measure, rather than from total capital. This is the approach
of the Basel II Accord, but the EU CRD specifically state that this type of
deduction should be deducted from total capital. However, there is potential for
this to change as the CRD is still in draft form and will be not be enacted for
another 12 to 18 months. This could be an area where national regulators have
the flexibility to enforce deductions in a manner appropriate to their
regime.

5.2.3: Operational Risk

This is a new charge with no existing
equivalent. The Standardised Approach is based on gross income by business line
multiplied by a factor for that business line, reflecting its relative
riskiness. Abbey's operational risk charge will reflect the large proportion of
gross income derived from the Retail business line, which is the least risky and
attracts the lowest beta.. Abbey estimate that the capital charge for
operational risk will increase risk weighted assets between £4.0bn and £4.5bn.

5.2.4: Calibration

The Basel Committee have reiterated
that their overall objective is to broadly maintain the aggregate level of
capital within the financial system. This requires the application of a single
scaling factor, which could be either greater than or less than one. The current
best estimate of the scaling factor using QIS 3 data is 1.06, although this is
subject to change.

5.2.5: Capital floors

As with all users of the foundation and
advanced IRB approach, Abbey is expected to be subject to capital floors of 90%
then 80% in 2008 and 2009 respectively. For foundation and Retail IRB banks only
the floor will be 95% in 2007. This will initially limit the potential benefit
to a maximum of 5%, 10% and 20% of capital requirements, as they would be
calculated under current rules, in years 1, 2 and 3 respectively. The Basel
Committee will be prepared to keep the floor in place beyond 2009 should
problems emerge in the financial system during the transitional period.

5.2.6: Other issues

Expected / Unexpected Losses

Revised proposals on the treatment of
expected and unexpected losses within the internal ratings framework for credit
risks have been recently issued and are currently being reviewed.

Abbey anticipates that whilst the
exclusion of expected losses from the IRB framework will increase the level of
Tier 1 capital. However, this will be offset by a corresponding reduction in
Tier 2 due to the exclusion of general provisions. The net effect will be to
leave the overall capital adequacy position unchanged, though the calculated
equity and tier 1 capital ratios will be altered slightly as a result of these
adjustments.

Abbey Financial Markets

It is possible that some or all of
Abbey's remaining Banking books may be reclassified as trading, while Wholesale
PBU assets are expected to be immaterial to total risk weighted assets by the
end of 2006.

There is likely to be a reduction in
trading book risk weighted assets.

Pillar 2

Under Pillar 2 national supervisors can
require a bank to operate a buffer over and above the Pillar 1 charge for
bank-specific uncertainties. The method used by the FSA is the setting of target
capital ratios above the minimum Basel capital ratio requirement of 8%.



5.3: Potential impact of Consultation
Paper 204

Consultation Paper (CP) 204 is the
FSA's interpretation of the EU Finance Group's Directive (FGD), defining the
capital necessary for a financial conglomerate with operations in banking /
insurance / investment services / building societies. It has particular
significance for those groups operating beneath a holding company structure -
which does not apply to Abbey. Overall impact for Abbey is expected to be
broadly neutral, if the CP goes forward in its current form, except for one new
feature relating to subsidiary Life Groups.

Life Companies must be individually
capitalised to meet Minimum Solvency Requirements. Where there is a Life Holding
Company (LHC) between these entities and an FSA-supervised parent bank, the
solvency test for that Holding Company has traditionally been a "soft test" -
i.e. providing the parent bank had sufficient surplus capital to meet any
shortfall in the LHC's required solvency, that capital amount did not have to
physically injected. This discretion is likely to be removed under the European
drafting. Following the clarification of the capital position of the life
assurance businesses, CP204 is not expected to impact Abbey.

5.4: Potential impact of Integrated
Prudential Sourcebook

The FSAs Integrated Prudential
Sourcebook (IPSB) replaces the current five Interim Prudential Sourcebooks and
will bring together the main regulatory requirements discussed above as well as
new regulation covering life assurance discussed in section 4.3 and other areas
noted below. The main stages of IPSB implementation are:

|October 2004                 | Prudential requirements for
      mortgage firms                                                                  
|---------------------------- | ------------------------------------------------------------------------------------------------------------------
|December 2004                | Systems and Controls                                                                                              
|December 2004 - January 2005 | All insurance material and
      valuation for insurers                                                           
|December 2006 onwards        | Risk Based Capital including Basel
      II and CRD material and market risk (existing CAD1 and CAD2 requirements)
|2007                         | Liquidity quantitative
      requirements                                                                         



6.0: STATUTORY FINANCIAL INFORMATION

6.1: Consolidated profit and loss account

|                                                                                | 6 months to 30 June 2004
      Unaudited | 6 months to 30 June 2003
      Unaudited | Full year 2003
      Audited
|------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------- | ----------------------------
|                                                                                | £ m                                      | £ m                                      | £ m                         
|                                                                                | ___________                              | ___________                              | ___________                 
|Interest receivable                                                             | 2,482                                    | 2,906                                    | 5,244                       
|Interest payable                                                                | (1,652)                                  | (1,806)                                  | (3,182)                     
|                                                                                | ___________                              | ___________                              | ___________                 
|Net interest income                                                             | 830                                      | 1,100                                    | 2,062                       
|                                                                                |                                          |                                          |                             
|Dividend income                                                                 | -                                        | -                                        | 1                           
|Fees and commissions receivable                                                 | 237                                      | 354                                      | 767                         
|Fees and commissions payable                                                    | (62)                                     | (127)                                    | (248)                       
|Dealing profits                                                                 | 128                                      | 146                                      | 217                         
|                                                                                |                                          |                                          |                             
|Income from long-term assurance
      business                                  | 156                                      | 23                                       | 176                         
|Embedded value rebasing and other
      adjustments                             | (103)                                    | (168)                                    | (378)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Income from long-term assurance
      business                                  | 53                                       | (145)                                    | (202)                       
|                                                                                |                                          |                                          |                             
|Other operating income /
    (expenses)                                         | 172                                      | 84                                       | (165)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Total operating income - continuing
      operations                            | 1,354                                    | 1,643                                    | 2,791                       
|Total operating income - discontinued
      operations                          | 4                                        | (231)                                    | (359)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Total operating income                                                          | 1,358                                    | 1,412                                    | 2,432                       
|                                                                                |                                          |                                          |                             
|Administrative expenses                                                         | (865)                                    | (989)                                    | (2,014)                     
|                                                                                |                                          |                                          |                             
|Depreciation of fixed assets (excl. operating
      lease assets)               | (39)                                     | (48)                                     | (112)                       
|Depreciation and impairment on operating lease
      assets                     | (76)                                     | (121)                                    | (251)                       
|Amortisation and impairment of
      goodwill                                   | (10)                                     | (10)                                     | (38)                        
|                                                                                | ___________                              | ___________                              | ___________                 
|Depreciation, amortisation and
      impairment                                 | (125)                                    | (179)                                    | (401)                       
|                                                                                |                                          |                                          |                             
|Provisions for bad and doubtful
    debts                                       | (58)                                     | (226)                                    | (474)                       
|Provisions for contingent liabilities and
      commitments                     | (3)                                      | (20)                                     | (104)                       
|Amounts written off fixed asset
      investments                               | 6                                        | (155)                                    | (193)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Provisions and amounts written off fixed asset
      investments                | (55)                                     | (401)                                    | (771)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Operating profit / (loss)                                                       | 313                                      | (157)                                    | (754)                       
|                                                                                |                                          |                                          |                             
|Income from associated
    undertakings                                         | 3                                        | 6                                        | 12                          
|Profit on disposal of Group
      undertakings                                  | 34                                       | 7                                        | 89                          
|Loss on the sale or termination of an
      operation                           | -                                        | -                                        | (33)                        
|                                                                                |                                          |                                          |                             
|Continuing operations                                                           | 330                                      | 299                                      | (183)                       
|Discontinued operations                                                         | 20                                       | (443)                                    | (503)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Profit / (loss) on ordinary activities before
      tax                         | 350                                      | (144)                                    | (686)                       
|                                                                                |                                          |                                          |                             
|Tax on profit / (loss) on ordinary
      activities                             | (113)                                    | 26                                       | 42                          
|                                                                                | ___________                              | ___________                              | ___________                 
|Profit / (loss) on ordinary activities after
      tax                          | 237                                      | (118)                                    | (644)                       
|Minority interests - non equity                                                 | (24)                                     | (28)                                     | (55)                        
|                                                                                | ___________                              | ___________                              | ___________                 
|Profit / (loss) attributable to
      shareholders                              | 213                                      | (146)                                    | (699)                       
|                                                                                |                                          |                                          |                             
|Transfer from / (to) non-distributable
      reserve                            | 19                                       | -                                        | (200)                       
|Preference dividends                                                            | (24)                                     | (28)                                     | (60)                        
|Ordinary dividends                                                              | (122)                                    | (120)                                    | (364)                       
|                                                                                | ___________                              | ___________                              | ___________                 
|Retained profit / (loss) for the
      period                                   | 86                                       | (294)                                    | (1,323)                     
|                                                                                | ___________                              | ___________                              | ___________                 
|Profit on ordinary activities before tax
      includes for acquired operations | -                                        | -                                        | -                           
|                                                                                | ___________                              | ___________                              | ___________                 

6.2: Consolidated balance sheet

|                                                                    | At
      30 June
      2004
      Unaudited | At
      30 June
      2003
      Unaudited | At
      31 December
      2003
      Audited
|------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------- | ---------------------------------------------
|                                                                    | £ m                                         | £ m                                         | £ m                                          
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Assets                                                              |                                             |                                             |                                              
|Cash and balances at central
banks                                  | 398                                         | 379                                         | 439                                          
|Treasury bills and other eligible
      bills                       | 1,100                                       | 1,997                                       | 1,631                                        
|Loans and advances to banks                                         | 4,642                                       | 8,106                                       | 7,155                                        
|                                                                    |                                             |                                             |                                              
|Loans and advances to customers not subject to
      securitisation | 82,885                                      | 81,604                                      | 84,488                                       
|Loans and advances to customers subject to
      securitisation     | 29,559                                      | 24,061                                      | 23,833                                       
|Less: Non-recourse finance                                          | (17,042)                                    | (16,666)                                    | (14,482)                                     
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Loans and advances to customers                                     | 95,402                                      | 88,999                                      | 93,839                                       
|                                                                    |                                             |                                             |                                              
|Net investment in finance leases                                    | 1,640                                       | 3,330                                       | 2,573                                        
|Debt securities                                                     | 27,366                                      | 36,782                                      | 30,328                                       
|Equity shares and other similar
      interests                     | 1,530                                       | 803                                         | 1,633                                        
|Long-term assurance business                                        | 2,235                                       | 2,549                                       | 2,272                                        
|Interests in associated
    undertakings                            | 22                                          | 37                                          | 39                                           
|Intangible fixed assets                                             | 326                                         | 366                                         | 341                                          
|Tangible fixed assets excluding operating lease
      assets        | 249                                         | 332                                         | 268                                          
|Operating lease assets                                              | 2,509                                       | 2,646                                       | 2,529                                        
|Other assets                                                        | 4,636                                       | 4,161                                       | 4,162                                        
|Prepayments and accrued income                                      | 1,066                                       | 1,528                                       | 1,230                                        
|Assets of long-term assurance
    funds                             | 27,850                                      | 30,283                                      | 28,336                                       
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Total assets                                                        | 170,971                                     | 182,298                                     | 176,775                                      
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Liabilities                                                         |                                             |                                             |                                              
|Deposits by banks                                                   | 17,716                                      | 20,850                                      | 22,125                                       
|Customer accounts                                                   | 75,949                                      | 76,389                                      | 74,401                                       
|Debt securities in issue                                            | 24,303                                      | 28,914                                      | 24,834                                       
|Dividend proposed                                                   | 122                                         | 136                                         | 245                                          
|Other liabilities                                                   | 10,177                                      | 8,797                                       | 11,452                                       
|Accruals and deferred income                                        | 1,498                                       | 1,674                                       | 1,582                                        
|Provisions for liabilities and
      charges                        | 789                                         | 1,097                                       | 836                                          
|Subordinated liabilities including convertible
      debt           | 5,815                                       | 6,500                                       | 6,337                                        
|Other long-term capital
    instruments                             | 738                                         | 763                                         | 742                                          
|Liabilities of long-term assurance
      funds                      | 27,850                                      | 30,283                                      | 28,336                                       
|Minority interests - non-equity                                     | 546                                         | 597                                         | 554                                          
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Total liabilities                                                   | 165,503                                     | 176,000                                     | 171,444                                      
|                                                                    |                                             |                                             |                                              
|Called up share capital - ordinary
      shares                     | 147                                         | 146                                         | 146                                          
|Called up share capital - preference
      shares                   | 325                                         | 325                                         | 325                                          
|Share premium account                                               | 2,115                                       | 2,163                                       | 2,059                                        
|Reserves                                                            | 264                                         | 153                                         | 274                                          
|Profit and loss account                                             | 2,617                                       | 3,511                                       | 2,527                                        
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Shareholders' funds including non-equity
      interest             | 5,468                                       | 6,298                                       | 5,331                                        
|                                                                    | ___________                                 | ___________                                 | ___________                                  
|Total liabilities and shareholders'
      funds                     | 170,971                                     | 182,298                                     | 176,775                                      
|                                                                    | ___________                                 | ___________                                 | ___________                                  

Overview of the consolidated balance sheet

Total assets of £171bn down 3.3% from
£176.8bn in December 2003 with the significant drivers as follows:

> > Loans and advances to
>   banks of £4.6bn, down 36% (December 2003: £7.2bn) due to reduced Repo activity
>   with banks within Abbey Financial Markets. This has been offset with an
>   equivalent increase in loans and advances to customers see below.
>   > Loans and advances to
>   customers increased by 2% to £95.4bn (December 2003: £93.8bn). This has been
>   driven by £3.2bn of new mortgage lending and a £2.7bn increase in reverse
>   repos. This has been offset by an additional £2.5bn issue of mortgage-backed
>   securities and £1.0bn of disposals.
>   Loans and advances subject to
>   securitisation of £29.6bn represent residential mortgage assets that have been
>   transferred directly to standalone securitisation vehicles or to a master
>   trust for the purposes of issuing mortgage-backed securities. The £17.0bn
>   non-returnable finance on securitised advances relates to mortgage assets that
>   have been securitised. The balance mainly represents residential mortgage
>   asset in the master trust against which mortgage-backed securities have not
>   been issued.
>   > Net investment in finance
>   leases has fallen by 38% to £1.6bn (December 2003: £2.6bn) due to the
>   continued sale of leasing companies as part of the disposal programme in the
>   Portfolio Business Unit.
>   > Dealing debt securities
>   have fallen by £2.1bn, down 28% from December 2003. This has reduced in line
>   with expectations due to reduced trading activity.
>   > Deposits by banks have
>   decreased by 20% to £17.7bn (December 2003: £22.1bn). This has been driven by
>   a fall in sale and repurchase agreements with banks in Abbey Financial Markets
>   during the period.
>   > Customer accounts of
>   £75.9bn were up 2% (December 2003: £74.4bn) due to an increase in sale and
>   repurchase agreements with customers of £2.9bn, partly offset by the decrease
>   in similar agreements with banks and a £1.0bn decrease in retail deposits.
>   > Other liabilities of
>   £10.2bn were down 11% from December 2003 of £11.5bn due to a decrease in the
>   negative fair value of trading derivatives. The movement is due to the impact
>   of recovering equity prices on equity swaps and reduction in positions.

6.3: Consolidated cash flow statement

|                                                                            | 6 months to
      30 June 2004
      Unaudited | 6 months to
      30 June 2003
      Unaudited | Full year
      2003
      Audited
|--------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | ----------------------------------
|                                                                            | £ m                                            | £ m                                            | £ m                               
|                                                                            | ___________                                    | ___________                                    | ___________                       
|Net cash outflow from operating
      activities                            | (2,126)                                        | (29,125)                                       | (32,678)                          
|Returns on investments and servicing of
      finance:                      |                                                |                                                |                                   
|- Interest paid on subordinated
      liabilities                           | (119)                                          | (144)                                          | (262)                             
|- Preference dividends paid                                                 | (24)                                           | (28)                                           | (55)                              
|- Payments to non-equity minority
      interests                           | (24)                                           | (28)                                           | (55)                              
|                                                                            | ___________                                    | ___________                                    | ___________                       
|Net cash outflow from returns on investments
      and servicing of finance | (167)                                          | (200)                                          | (372)                             
|                                                                            |                                                |                                                |                                   
|Taxation:                                                                   |                                                |                                                |                                   
|- UK corporation tax received /
      (paid)                                | 4                                              | 19                                             | (93)                              
|- Overseas tax paid                                                         | (2)                                            | (3)                                            | (6)                               
|                                                                            | ___________                                    | ___________                                    | ___________                       
|Total taxation received /
    (paid)                                        | 2                                              | 16                                             | (99)                              
|                                                                            |                                                |                                                |                                   
|Capital expenditure and financial
      investment:                         |                                                |                                                |                                   
|- Purchases of investment
    securities                                    | (476)                                          | (2,893)                                        | (3,895)                           
|- Sales of investment securities                                            | 632                                            | 26,908                                         | 26,462                            
|- Redemptions and maturities of investment
      securities                 | 1,026                                          | 1,071                                          | 3,175                             
|- Purchases of tangible fixed
    assets                                    | (141)                                          | (228)                                          | (532)                             
|- Sales of tangible fixed assets                                            | 52                                             | 1                                              | 194                               
|- Transfers from / (to) life assurance
      funds                          | 48                                             | (227)                                          | (215)                             
|                                                                            | ___________                                    | ___________                                    | ___________                       
|Net cash inflow from capital expenditure and
      financial investment     | 1,141                                          | 24,632                                         | 25,189                            
|                                                                            |                                                |                                                |                                   
|Acquisitions and disposals                                                  | 1,252                                          | 4,788                                          | 8,803                             
|Equity dividends paid                                                       | (189)                                          | (104)                                          | (216)                             
|                                                                            | ___________                                    | ___________                                    | ___________                       
|Net cash (outflow) / inflow before
      financing                          | (87)                                           | 7                                              | 627                               
|                                                                            |                                                |                                                |                                   
|Financing:                                                                  |                                                |                                                |                                   
|- Issue of ordinary share capital                                           | 2                                              | -                                              | 2                                 
|- Redemption of preference share
      capital                              | -                                              | -                                              | (124)                             
|- Redemption of preferred
    securities                                    | -                                              | (15)                                           | (15)                              
|- Repayments of loan capital                                                | (415)                                          | (60)                                           | (56)                              
|                                                                            | ___________                                    | ___________                                    | ___________                       
|Net cash outflow from
    financing                                         | (413)                                          | (75)                                           | (193)                             
|                                                                            | ___________                                    | ___________                                    | ___________                       
|(Decrease) / increase in cash                                               | (500)                                          | (68)                                           | 434                               
|                                                                            | ___________                                    | ___________                                    | ___________                       

The net cash outflow from operating
activities of £(2,126)m (Half 1 2003: £(29,125)m; Full year 2003 £(32,678)m) is
made up of a cash inflow from trading activities of £694m (Half 1 2003: £735m,
full year 2003: £903m) and a cash outflow from operating assets and liabilities
of £(2,820)m (Half 1 2003: £(29,860)m, full year 2003: £(33,581)m). The large
outflow in 2003 largely relates to the sale of the investment debt securities
portfolios, which was used to settle debt securities in issue.



6.4: Consolidated statement of total
recognised gains and losses

|                                                                 | 6 months to
      30 June 2004
      Unaudited | 6 months to
      30 June 2003
      Unaudited | Full year
      2003
      Audited
|---------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | ----------------------------------
|                                                                 | £ m                                            | £ m                                            | £ m                               
|                                                                 | ___________                                    | ___________                                    | ___________                       
|Profit / (loss) attributable to the
      shareholders           | 213                                            | (146)                                          | (699)                             
|Translation differences on foreign currency net
      investment | -                                              | (2)                                            | (1)                               
|                                                                 | ___________                                    | ___________                                    | ___________                       
|Total recognised gains / (losses) relating to
      the period   | 213                                            | (148)                                          | (700)                             
|                                                                 | ___________                                    | ___________                                    | ___________                       

6.5: Reconciliation of movement in shareholders'
funds

|                                                                | 30 June
      2004 | 31 December
      2003
|--------------------------------------------------------------- | ------------------ | ----------------------
|                                                                | £ m                | £ m                   
|                                                                | ___________        | ___________           
|Shareholders' funds at beginning of the
      period            | 5,331              | 6,350                 
|Profit / (loss) retained for the
      period                   | 67                 | (1,123)               
|Increases in share capital including share
      premium        | 57                 | 20                    
|Sale of own shares                                              | 9                  | -                     
|Goodwill written off                                            | -                  | 5                     
|Goodwill written back on disposal                               | -                  | 190                   
|Redemptions of Preference Share Capital
      including premium | -                  | (116)                 
|Other movements                                                 | 4                  | 5                     
|                                                                | ___________        | ___________           
|Shareholders' funds at the end of the
      period              | 5,468              | 5,331                 
|                                                                | ___________        | ___________           

6.6: Earnings per share

|                                                                           | 6 months to 30 June
      2004 | 6 months to 30 June
      2003 | Full Year
      2003
|-------------------------------------------------------------------------- | ------------------------------ | ------------------------------ | --------------------
|                                                                           | ___________                    | ___________                    | ___________         
|Profit / (loss) for the period attributable to
      ordinary shareholders | £189m                          | £(174)m                        | £(759)m             
|                                                                           |                                |                                |                     
|Basic weighted average number of ordinary
      shares in issue            | 1,455m                         | 1,449m                         | 1,448m              
|Add: Potential ordinary shares
      (1)                                   | 10m                            | 13m                            | -                   
|                                                                           | ___________                    | ___________                    | ___________         
|Diluted weighted average number of
      shares                            | 1,465m                         | 1,462m                         | 1,448m              
|                                                                           |                                |                                |                     
|Earnings / (losses) per ordinary
      share                               | 13.0p                          | (12.0)p                        | (52.4)p             
|                                                                           |                                |                                |                     
|Fully diluted earnings / (losses) per ordinary
      share                 | 12.9p                          | (11.9)p                        | (52.4)p             
|                                                                           | ___________                    | ___________                    | ___________         



6.7: Taxation

The factors affecting the charge for taxation for the
period are:

|                                                                       | 6 months to 30 June
    2004 | 6 months to 30 June
    2003 | Full year
      2003
|---------------------------------------------------------------------- | ---------------------------- | ---------------------------- | --------------------
|                                                                       | £ m                          | £ m                          | £ m                 
|                                                                       | ___________                  | ___________                  | ___________         
|Taxation at UK corporation tax rate of 30%
      (2002: 30%)           | 105                          | (43)                         | (206)               
|                                                                       |                              |                              |                     
|Effect of non-allowable provisions and other
      non-equalised items | 22                           | 29                           | 218                 
|Impairment and amortisation of
      goodwill                          | 3                            | 2                            | 11                  
|Capital allowances for the period in excess of
      depreciation      | (32)                         | (11)                         | (61)                
|Provisions and short-term timing
      differences                     | (18)                         | 6                            | 98                  
|Effect of non-UK profits and
    losses                                | (2)                          | 5                            | 6                   
|Adjustment to prior year tax
      provisions                          | (15)                         | (24)                         | (112)               
|                                                                       |                              |                              |                     
|Deferred tax: Timing difference, origination
      and reversal        | 50                           | 10                           | 4                   
|                                                                       | ___________                  | ___________                  | ___________         
|Total taxation                                                         | 113                          | (26)                         | (42)                
|                                                                       | ___________                  | ___________                  | ___________         
|Effective rate (1)                                                     | 32.3%                        | 18.1%                        | 6.1%                

(1)The effective tax rate
is obtained by dividing taxes by profit / (loss) before taxes.

Reconciliation of effective tax rate
for the 6 months ended 30 June 2004

A reconciliation of the total taxation
charge for PFS and PBU follows:

|                                                         | 30 June 2004
|-------------------------------------------------------- | ------------
|                                                         | PFS         
|                                                         | £ m         
|                                                         | ___________ 
|Profit before tax                                        | 340         
|                                                         |             
|Tax adjustments:                                         |             
|- Non-equalised element of with
      profit fund review | 87          
|- Non-taxable gains on sales of
      subsidiaries       | -           
|- Depreciation on revalued
      asset                   | -           
|- Goodwill
    amortisation                              | 10          
|- Other tax
    adjustments                              | (21)        
|                                                         | ___________ 
|Taxable profit                                           | 416         
|                                                         | ___________ 
|Taxation @ 30%                                           | 125         
|Prior year
    adjustments                               | (13)        
|                                                         | ___________ 
|Total taxation                                           | 112         
|                                                         | ___________ 
|                                                         |             
|Effective tax
    rate                                   | 32.9%       
|                                                         | ___________ 

The 2004 effective tax rate has been adversely
impacted by the non- tax equalised elements within the review of the Life
Assurance With Profit Funds.

APPENDIX 1: PERSONAL FINANCIAL SERVICES (PFS) P&L
ANALYSIS

Total Personal Financial Services

|                                                            | 6 months to
      30 June 2004 | 6 months to
      31 December 2003 | 6 months to
      30 June 2003
|----------------------------------------------------------- | ------------------------------ | ---------------------------------- | ------------------------------
|                                                            | £ m                            | £ m                                | £ m                           
|                                                            | ___________                    | ___________                        | ___________                   
|Net interest income                                         | 798                            | 849                                | 860                           
|Non-interest income                                         | 521                            | 525                                | 555                           
|                                                            | ___________                    | ___________                        | ___________                   
|Total trading income                                        | 1,319                          | 1,374                              | 1,415                         
|                                                            |                                |                                    |                               
|Operating expenses                                          | (783)                          | (817)                              | (760)                         
|Provisions for bad and doubtful
    debts                   | (67)                           | (66)                               | (64)                          
|Provisions for contingent liabilities and
      commitments | (1)                            | (61)                               | -                             
|Amounts written off fixed asset
      investments           | -                              | 3                                  | (3)                           
|                                                            | ___________                    | ___________                        | ___________                   
|Trading profit before tax                                   | 468                            | 433                                | 588                           
|                                                            | ___________                    | ___________                        | ___________                   
|Adjust for:                                                 |                                |                                    |                               
|                                                            |                                |                                    |                               
|- Embedded value charges and
    rebasing                   | (24)                           | (341)                              | (102)                         
|- Re-organisation expenses                                  | (94)                           | (189)                              | (126)                         
|- Goodwill charges                                          | (10)                           | (19)                               | (9)                           
|                                                            | ___________                    | ___________                        | ___________                   
|Profit / (loss) before tax                                  | 340                            | (116)                              | 351                           
|                                                            | ___________                    | ___________                        | ___________                   
|Trading profit / (loss) by
      business:                  |                                |                                    |                               
|                                                            |                                |                                    |                               
|Banking and Savings                                         | 353                            | 401                                | 475                           
|Investment and Protection                                   | 115                            | 133                                | 106                           
|General Insurance                                           | 36                             | 44                                 | 29                            
|Treasury Services                                           | 75                             | 42                                 | 98                            
|Group Infrastructure                                        | (111)                          | (187)                              | (120)                         
|                                                            | ___________                    | ___________                        | ___________                   
|Trading profit before tax                                   | 468                            | 433                                | 588                           
|                                                            | ___________                    | ___________                        | ___________                   
|Trading cost: income ratio                                  | 59.4%                          | 59.5%                              | 53.7%                         
|                                                            | ___________                    | ___________                        | ___________                   

Banking and Savings

|6 Months to 30 June 2004                                    | Abbeyretail£
m | cahoot£ m   | Cater Allen& Abbey
      International£ m | Total£ m   
|----------------------------------------------------------- | -------------- | ----------- | ----------------------------------------- | -----------
|                                                            | ___________    | ___________ | ___________                               | ___________
|Net interest income                                         | 724            | 25          | 33                                        | 782        
|Non-interest income                                         | 185            | 6           | 2                                         | 193        
|                                                            | ___________    | ___________ | ___________                               | ___________
|Total trading income                                        | 909            | 31          | 35                                        | 975        
|                                                            |                |             |                                           |            
|Trading expenses                                            | (515)          | (21)        | (18)                                      | (554)      
|Provisions for bad and doubtful
    debts                   | (53)           | (14)        | -                                         | (67)       
|Provisions for contingent liabilities and
      commitments | (1)            | -           | -                                         | (1)        
|                                                            | ___________    | ___________ | ___________                               | ___________
|Trading profit / (loss) before
      tax                    | 340            | (4)         | 17                                        | 353        
|                                                            |                |             |                                           |            
|Adjust for:                                                 |                |             |                                           |            
|                                                            |                |             |                                           |            
|- Re-organisation
      expenses(1)                         | (24)           | -           | (2)                                       | (26)       
|                                                            | ___________    | ___________ | ___________                               | ___________
|Profit / (loss) before tax                                  | 316            | (4)         | 15                                        | 327        
|                                                            | ___________    | ___________ | ___________                               | ___________
|6 months to 31 December
    2003                            | Abbeyretail£
m | cahoot£ m   | Cater Allen& Abbey
      International£ m | Total£ m   
|                                                            | ___________    | ___________ | ___________                               | ___________
|Net interest income                                         | 790            | 25          | 39                                        | 854        
|Non-interest income                                         | 199            | 6           | 2                                         | 207        
|                                                            | ___________    | ___________ | ___________                               | ___________
|Total trading income                                        | 989            | 31          | 41                                        | 1,061      
|                                                            |                |             |                                           |            
|Trading expenses                                            | (547)          | (21)        | (19)                                      | (587)      
|Provisions for bad and doubtful
    debts                   | (50)           | (16)        | -                                         | (66)       
|Provisions for contingent liabilities and
      commitments | (7)            | -           | -                                         | (7)        
|                                                            |                |             |                                           |            
|                                                            | ___________    | ___________ | ___________                               | ___________
|Trading profit / (loss) before
      tax                    | 385            | (6)         | 22                                        | 401        
|                                                            |                |             |                                           |            
|Adjust for:                                                 |                |             |                                           |            
|                                                            |                |             |                                           |            
|- Re-organisation expenses(1)                               | (75)           | -           | (12)                                      | (87)       
|                                                            | ___________    | ___________ | ___________                               | ___________
|Profit / (loss) before tax                                  | 310            | (6)         | 10                                        | 314        
|                                                            | ___________    | ___________ | ___________                               | ___________
|6 months to 30 June 2003                                    | Abbeyretail£
m | cahoot£ m   | Cater Allen& Abbey
      International£ m | Total£ m   
|                                                            | ___________    | ___________ | ___________                               | ___________
|Net interest income                                         | 809            | 20          | 37                                        | 866        
|Non-interest income                                         | 211            | 6           | 3                                         | 220        
|                                                            | ___________    | ___________ | ___________                               | ___________
|Total trading income                                        | 1,020          | 26          | 40                                        | 1,086      
|                                                            |                |             |                                           |            
|Trading expenses                                            | (494)          | (22)        | (29)                                      | (545)      
|Provisions for bad and doubtful
    debts                   | (51)           | (13)        | -                                         | (64)       
|Provisions for contingent liabilities and
      commitments | (2)            | -           | -                                         | (2)        
|                                                            | ___________    | ___________ | ___________                               | ___________
|Trading profit / (loss) before
      tax                    | 473            | (9)         | 11                                        | 475        
|                                                            |                |             |                                           |            
|Adjust for:                                                 |                |             |                                           |            
|                                                            |                |             |                                           |            
|- Re-organisation expenses(1)                               | (82)           | -           | -                                         | (82)       
|                                                            | ___________    | ___________ | ___________                               | ___________
|Profit / (loss) before tax                                  | 391            | (9)         | 11                                        | 393        
|                                                            | ___________    | ___________ | ___________                               | ___________

(1)Re-organisation
expenses of £24m (Half 1 2003: £82m; Half 2 2003: £75m) in Abbey retail comprise
£24m (Half 1 2003: £70m; Half 2 2003: £77m) of operating expenses and £nil (Half
1 2003: £12m, Half 2 2003: £(2)m) of amounts written off fixed asset
investments. Of the £2m (Half 1 2003: £nil; Half 2 2003: £12m) of
re-organisation costs in Cater Allen and Abbey International, £2m (Half 1 2003:
£nil; Half 2 2003: £7m) is operating expenses, with the balance being provisions
for contingent liabilities and commitments.

Investment and Protection

|6 months to 30 June 2004                                    | Abbey
      National
      Life (ANL)
      £ m | Scottish
      Mutual
      (SMA)
      £ m | Scottish
      Provident
      (SP)
      £ m | Other
      £ m | Total
      £ m
|----------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------- | --------------------------------------------- | --------------- | ---------------
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Net interest income                                         | 4                                               | 14                                          | 25                                            | 5               | 48             
|Non-interest income                                         | 41                                              | 14                                          | 33                                            | 16              | 104            
|                                                            |                                                 |                                             |                                               |                 |                
|Total trading income                                        | 45                                              | 28                                          | 58                                            | 21              | 152            
|                                                            |                                                 |                                             |                                               |                 |                
|Trading expenses                                            | (6)                                             | (6)                                         | -                                             | (25)            | (37)           
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Trading profit / (loss) before
      tax                    | 39                                              | 22                                          | 58                                            | (4)             | 115            
|                                                            |                                                 |                                             |                                               |                 |                
|Adjust for:                                                 |                                                 |                                             |                                               |                 |                
|                                                            |                                                 |                                             |                                               |                 |                
|- Embedded value charges and
      rebasing(1)              | (7)                                             | (42)                                        | 25                                            | -               | (24)           
|- Re-organisation expenses
      (2)                        | (7)                                             | (11)                                        | (20)                                          | -               | (38)           
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Profit / (loss) before tax                                  | 25                                              | (31)                                        | 63                                            | (4)             | 53             
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|                                                            |                                                 |                                             |                                               |                 |                
|6 months to 31 December
    2003                            | ANL
      £ m                                   | SMA
      £ m                               | SP
      £ m                                  | Other
      £ m | Total
      £ m
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Net interest income                                         | 2                                               | 13                                          | 26                                            | (1)             | 40             
|Non-interest income                                         | 38                                              | 27                                          | 42                                            | 17              | 124            
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Total trading income                                        | 40                                              | 40                                          | 68                                            | 16              | 164            
|                                                            |                                                 |                                             |                                               |                 |                
|Trading expenses                                            | (5)                                             | (8)                                         | -                                             | (19)            | (32)           
|Provisions for contingent liabilities and
      commitments | 1                                               | -                                           | -                                             | -               | 1              
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Trading profit / (loss) before
      tax                    | 36                                              | 32                                          | 68                                            | (3)             | 133            
|                                                            |                                                 |                                             |                                               |                 |                
|Adjust for:                                                 |                                                 |                                             |                                               |                 |                
|                                                            |                                                 |                                             |                                               |                 |                
|- Embedded value charges and
      rebasing(1)              | 22                                              | (240)                                       | (123)                                         | -               | (341)          
|- Reorganisation expenses                                   | -                                               | (8)                                         | (3)                                           | -               | (11)           
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Profit / (loss) before tax                                  | 58                                              | (216)                                       | (58)                                          | (3)             | (219)          
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|                                                            |                                                 |                                             |                                               |                 |                
|6 months to 30 June 2003                                    | ANL
      £ m                                   | SMA
      £ m                               | SP
      £ m                                  | Other
      £ m | Total
      £ m
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Net interest income                                         | 4                                               | 13                                          | 25                                            | 1               | 43             
|Non-interest income                                         | 45                                              | 6                                           | 21                                            | 18              | 90             
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Total trading income                                        | 49                                              | 19                                          | 46                                            | 19              | 133            
|                                                            |                                                 |                                             |                                               |                 |                
|Trading expenses                                            | (5)                                             | (1)                                         | (1)                                           | (19)            | (26)           
|Provisions for contingent liabilities and
      commitments | (1)                                             | -                                           |                                               | -               | (1)            
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Trading profit before tax                                   | 43                                              | 18                                          | 45                                            | -               | 106            
|                                                            |                                                 |                                             |                                               |                 |                
|Adjust for:                                                 |                                                 |                                             |                                               |                 |                
|                                                            |                                                 |                                             |                                               |                 |                
|- Embedded value charges and
      rebasing(1)              | 4                                               | 33                                          | (139)                                         | -               | (102)          
|- Re-organisation expenses
      (2)                        | -                                               | -                                           | (5)                                           | -               | (5)            
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    
|Profit / (loss) before tax                                  | 47                                              | 51                                          | (99)                                          | -               | (1)            
|                                                            | ___________                                     | ___________                                 | ___________                                   | ___________     | ___________    

(1)Embedded value charges
and rebasing of £24m (Half 1 2003: £102m; Half 2 2003: £341m) are reported on a
statutory basis as part of non-interest income, except for £80m in Half 1 2003
reported as provisions for bad and doubtful debts.

(2) Of the total
re-organisation expenses of £38m (Half 1 2003: £5m; Half 2 2003: £11m), £35m
(Half 1 £5m, Half 2: £11m) are reported as part of non-interest income for
statutory purposes, with the balance of £3m in 2004 reported in operating
expenses.

General Insurance

|                              | 6 months to
      30 June 2004
      £ m | 6 months to
      31 December 2003
      £ m | 6 months to
      30 June 2003
      £ m
|----------------------------- | ---------------------------------------- | -------------------------------------------- | ----------------------------------------
|                              | ___________                              | ___________                                  | ___________                             
|Net interest income           | (1)                                      | (2)                                          | (3)                                     
|Non-interest income           | 57                                       | 67                                           | 59                                      
|                              | ___________                              | ___________                                  | ___________                             
|Total trading income          | 56                                       | 65                                           | 56                                      
|                              |                                          |                                              |                                         
|Trading expenses              | (20)                                     | (21)                                         | (27)                                    
|                              | ___________                              | ___________                                  | ___________                             
|Trading profit before tax     | 36                                       | 44                                           | 29                                      
|                              |                                          |                                              |                                         
|Adjust for:                   |                                          |                                              |                                         
|                              |                                          |                                              |                                         
|- Re-organisation expenses(1) | (3)                                      | (26)                                         | (15)                                    
|                              | ___________                              | ___________                                  | ___________                             
|Profit before tax             | 33                                       | 18                                           | 14                                      
|                              | ___________                              | ___________                                  | ___________                             

(1) Re-organisation expenses
of £3m (Half 1 2003: £15m; Half 2 2003: £26m) are reported as operating
expenses.

Abbey Financial Markets

|                              | 6 months to
      30 June 2004
      £ m | 6 months to
      31 December 2003
      £ m | 6 months to
      30 June 2003
      £ m
|----------------------------- | ---------------------------------------- | -------------------------------------------- | ----------------------------------------
|                              | ___________                              | ___________                                  | ___________                             
|Net interest income           | 15                                       | 11                                           | 15                                      
|Non-interest income           | 113                                      | 80                                           | 143                                     
|                              | ___________                              | ___________                                  | ___________                             
|Total trading income          | 128                                      | 91                                           | 158                                     
|                              |                                          |                                              |                                         
|Trading expenses              | (53)                                     | (49)                                         | (60)                                    
|                              | ___________                              | ___________                                  | ___________                             
|Trading profit before tax     | 75                                       | 42                                           | 98                                      
|                              |                                          |                                              |                                         
|Adjust for:                   |                                          |                                              |                                         
|                              |                                          |                                              |                                         
|- Re-organisation expenses(1) | (10)                                     | (14)                                         | (5)                                     
|                              | ___________                              | ___________                                  | ___________                             
|Profit before tax             | 65                                       | 28                                           | 93                                      
|                              | ___________                              | ___________                                  | ___________                             

(1) Re-organisation expenses
of £10m (Half 1 2003: £5m; Half 2 2003: £14m) are reported as operating
expenses.

Group Infrastructure

|                                                          | 6 months to
      30 June 2004
      £ m | 6 months to
      31 December 2003
      £ m | 6 months to
      30 June 2003
      £ m
|--------------------------------------------------------- | ---------------------------------------- | -------------------------------------------- | ----------------------------------------
|                                                          | ___________                              | ___________                                  | ___________                             
|Net interest income                                       | (46)                                     | (54)                                         | (61)                                    
|Non-interest income                                       | 54                                       | 47                                           | 43                                      
|                                                          | ___________                              | ___________                                  | ___________                             
|Total trading income                                      | 8                                        | (7)                                          | (18)                                    
|                                                          |                                          |                                              |                                         
|Trading expenses                                          | (119)                                    | (128)                                        | (102)                                   
|Provisions for contingent liabilities &
      commitments | -                                        | (52)                                         | -                                       
|                                                          | ___________                              | ___________                                  | ___________                             
|Trading loss before tax                                   | (111)                                    | (187)                                        | (120)                                   
|                                                          |                                          |                                              |                                         
|Adjust for:                                               |                                          |                                              |                                         
|                                                          |                                          |                                              |                                         
|- Re-organisation expenses(1)                             | (17)                                     | (51)                                         | (19)                                    
|- Goodwill charges(2)                                     | (10)                                     | (19)                                         | (9)                                     
|                                                          | ___________                              | ___________                                  | ___________                             
|Loss before tax                                           | (138)                                    | (257)                                        | (148)                                   

(1)Re-organisation expenses
of £17m (Half 1 2003: £19m; Half 2 2003: £51m) comprise £15m (Half 1 2003: £19m;
Half 2 2003: £32m) of operating expenses and £2m (Half 1 2003: £nil; Half 2
2003: £19m) of provisions for contingent liabilities and commitments.

(2) Goodwill charges of £10m
(Half 1 2003: £9m; Half 2 2003: £19m) are reported as operating expenses for
statutory purposes.

APPENDIX 2: PORTFOLIO BUSINESS UNIT (PBU) P&L
ANALYSIS

|6 months to 30 June 2004                                    | Wholesale Banking£
    m | MF and LF (1)£
      m | OtherPBU£ m | Total£ m   
|----------------------------------------------------------- | ------------------------ | ---------------------- | ----------- | -----------
|                                                            | ___________              | ___________            | ___________ | ___________
|Net interest income                                         | (28)                     | 40                     | 20          | 32         
|Non-interest income                                         | 85                       | (19)                   | -           | 66         
|                                                            | ___________              | ___________            | ___________ | ___________
|Total income                                                | 57                       | 21                     | 20          | 98         
|                                                            |                          |                        |             |            
|Administrative expenses                                     | (14)                     | (20)                   | (30)        | (64)       
|Depreciation on operating lease
      assets                | (76)                     | -                      | -           | (76)       
|Provisions for bad and doubtful
    debts                   | 56                       | (40)                   | (7)         | 9          
|Provisions for contingent liabilities and
      commitments | -                        | -                      | -           | -          
|Amounts written off fixed asset
      investments           | 6                        | -                      | -           | 6          
|                                                            | ___________              | ___________            | ___________ | ___________
|Operating profit / (loss)                                   | 29                       | (39)                   | (17)        | (27)       
|Income from associated
    undertakings                     | -                        | 3                      | -           | 3          
|Profit on disposal of Group
      undertakings              | 23                       | -                      | 11          | 34         
|                                                            | ___________              | ___________            | ___________ | ___________
|Profit / (loss) on ordinary activities before
      tax     | 52                       | (36)                   | (6)         | 10         
|                                                            | ___________              | ___________            | ___________ | ___________
|6 months to 31 December
    2003                            | Wholesale Banking£
    m | MF and LF (1)£
      m | OtherPBU£ m | Total£ m   
|                                                            | ___________              | ___________            | ___________ | ___________
|Net interest income                                         | (15)                     | 82                     | 46          | 113        
|Non-interest income                                         | (99)                     | (27)                   | 11          | (115)      
|                                                            | ___________              | ___________            | ___________ | ___________
|Total operating income                                      | (114)                    | 55                     | 57          | (2)        
|                                                            |                          |                        |             |            
|Administrative expenses                                     | (56)                     | (22)                   | (47)        | (125)      
|Depreciation on operating lease
      assets                | (129)                    | (1)                    | -           | (130)      
|Provisions for bad and doubtful
    debts                   | (116)                    | (58)                   | (8)         | (182)      
|Provisions for contingent liabilities and
      commitments | -                        | -                      | (4)         | (4)        
|Amounts written off fixed asset
      investments           | (38)                     | -                      | -           | (38)       
|                                                            | ___________              | ___________            | ___________ | ___________
|Operating loss                                              | (453)                    | (26)                   | (2)         | (481)      
|Income from associated
    undertakings                     | -                        | 6                      | -           | 6          
|Profit on disposal of Group
      undertakings              | 43                       | (1)                    | 40          | 82         
|Loss on sale or termination of a
      business             | (6)                      | (27)                   | -           | (33)       
|                                                            | ___________              | ___________            | ___________ | ___________
|(Loss) / profit on ordinary activities before
      tax     | (416)                    | (48)                   | 38          | (426)      
|                                                            | ___________              | ___________            | ___________ | ___________
|6 months to 30 June 2003                                    | Wholesale Banking£
    m | MF and LF (1)£
      m | OtherPBU£ m | Total£ m   
|                                                            | ___________              | ___________            | ___________ | ___________
|Net interest income                                         | 37                       | 163                    | 40          | 240        
|Non-interest income                                         | (148)                    | (42)                   | (26)        | (216)      
|                                                            | ___________              | ___________            | ___________ | ___________
|Total operating income                                      | (111)                    | 121                    | 14          | 24         
|                                                            |                          |                        |             |            
|Administrative expenses                                     | (45)                     | (88)                   | (36)        | (169)      
|Depreciation on operating lease
      assets                | (121)                    | -                      | -           | (121)      
|Provisions for bad and doubtful
    debts                   | (38)                     | (41)                   | (3)         | (82)       
|Provisions for contingent liabilities and
      commitments | (2)                      | -                      | (13)        | (15)       
|Amounts written off fixed asset
      investments           | (145)                    | -                      | -           | (145)      
|                                                            | ___________              | ___________            | ___________ | ___________
|Operating (loss) / profit                                   | (462)                    | (8)                    | (38)        | (508)      
|Income from associated
    undertakings                     | -                        | 6                      | -           | 6          
|Profit on disposal of Group
      undertakings              | 7                        | -                      | -           | 7          
|                                                            | ___________              | ___________            | ___________ | ___________
|Loss on ordinary activities before
      tax                | (455)                    | (2)                    | (38)        | (495)      
|                                                            | ___________              | ___________            | ___________ | ___________

(1)MF and LF represent Motor Finance and
Litigation Funding.

APPENDIX 3: PENSION FUND

|                                                                                                         | 6 months to
      30 June 2004 | 6 months to
      31 December 2003 | 6 months to
      30 June 2003
|-------------------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------------------- | ------------------------------
|                                                                                                         | £ m                            | £ m                                | £ m                           
|                                                                                                         | ___________                    | ___________                        | ___________                   
|Regular cost                                                                                             | 35                             | 36                                 | 39                            
|Amortisation of surpluses arising on pension
      schemes                                               | -                              | 1                                  | (1)                           
|Amortisation of deficits arising on pension
      schemes                                                | 24                             | 28                                 | 17                            
|Amortisation of surplus arising from fair value
      adjustment on acquisition of National & Provincial | 1                              | 1                                  | 1                             
|                                                                                                         | ___________                    | ___________                        | ___________                   
|P&L charge in respect of defined benefit
      schemes                                                   | 60                             | 66                                 | 56                            
|                                                                                                         |                                |                                    |                               
|Add: P&L charge in respect of other schemes
      (1)                                                    | 2                              | 3                                  | 3                             
|                                                                                                         | ___________                    | ___________                        | ___________                   
|Total pension charges(2)                                                                                 | 62                             | 69                                 | 59                            
|                                                                                                         |                                |                                    |                               
|Less: Portfolio Business Unit (PBU)
      charges                                                        | (2)                            | (3)                                | (4)                           
|                                                                                                         | ___________                    | ___________                        | ___________                   
|PFS charges                                                                                              | 60                             | 66                                 | 55                            
|                                                                                                         | ___________                    | ___________                        | ___________                   

(1)Comprises defined
contribution pension schemes.

(2) Excludes £7m of pension
charges relating to the Life Assurance businesses reported in non-interest
income under embedded value accounting (Half 1 2003: £6m, Half 2 2003: £6m).

The following comments refer to the
pension cost for the combined PFS and PBU businesses.

The main Abbey defined benefit scheme
was closed to new members in March 2002 and replaced with a defined contribution
scheme. The decrease in the regular cost to £35m (Half 1 2003: £39m) reflects
the impact of employees leaving the defined benefit scheme, offset by inflation.
The June 2004 deficit on a SSAP 24 basis is estimated at £528m unchanged from 31
December 2003, with the 2004 full year profit and loss charge expected to be
broadly unchanged. A reduction in regular cost due to staff turnover is expected
to be offset by a higher amortisation charge. Amortisation for the first three
months of the year is based on the annual valuation from March the previous
year, with the charge for the subsequent 9 months driven by the annual valuation
from March of the reporting year. The year on year increase in amortisation is
largely due to a higher charge for the first quarter as a result of the deficit
increasing from £127m at March 2002 to £604m at March 2003.

FRS 17 disclosure

|                                        | 30 June
      2004 | 31 December
      2003 | 31 December
      2002
|--------------------------------------- | ------------------ | ---------------------- | ----------------------
|                                        | £ m                | £ m                    | £ m                   
|                                        | ___________        | ___________            | ___________           
|Total market value of assets            | 2,302              | 2,205                  | 1,880                 
|Present value of scheme
    liabilities | (3,205)            | (3,306)                | (2,722)               
|                                        | ___________        | ___________            | ___________           
|FRS 17 scheme deficit                   | (903)              | (1,101)                | (842)                 
|Related deferred tax asset              | 271                | 330                    | 253                   
|                                        | ___________        | ___________            | ___________           
|Net FRS 17 scheme deficit               | (632)              | (771)                  | (589)                 
|                                        | ___________        | ___________            | ___________           

The table above and the following
comments reflect the position of Abbey's defined benefit schemes in totality.

At 30 June 2004, taking assets at
market value and discounting future liabilities at an AA Corporate Bond Rate of
return gives an estimated scheme deficit under FRS17 of £632m post-tax (December
2003: £771m). Asset growth of £97m was primarily driven by investment returns,
with contributions to the fund largely offset by benefits paid out.

Valuations under FRS17 are dependent
upon market conditions at the balance sheet date, potentially leading to
volatility in results between reporting dates. Based on an asset value of
£2,302m at June 2004 and asset allocation targets of 50% equities, 30% bonds and
20% gilts and assuming average market returns, the estimated sensitivity to a
10% market movement is £115m for equities, £69m for bonds and £46m for gilts.

Liabilities are determined by
projecting forward the growth in current accrued pension benefits to reflect
inflation and salary growth to the date of pension payment, discounted to
present value. These fell by £101m to £3,205m (December 2003: £3,306m), as the
inclusion of a further six months service cost £58m for current scheme members
and the unwind of the discount £90m was more than offset by the impact of an
increase in the discount rate from 5.5% to 5.9% based on a long term AA
Corporate Bond return.



Whilst FRS 17 is prescriptive in terms
of requiring the discount rate to be based on the return on AA corporate bonds,
in practice, the definition of the return and inflation rates used are somewhat
more subjective. A 10 basis point movement in the net discount rate, the
difference between the return on AA Corporate Bonds and inflation, is estimated
to have a £65m impact on liabilities. FRS 17 disclosures at 31 December 2003
indicate that the net discount rates used by UK banks ranged from 2.6% to 3.1%
(Abbey 2.7%). Based on this range, Abbey's £1,101m deficit reported at 31
December 2003 would have been between £1,170m and £840m.

Under FRS 17, the P&L charge for
the first half of 2004 would be £79m, determined by the assumptions below and
the actual service accrued by scheme members. This comprises a £69m investment
return offset by £58m service cost and a £90m financing cost, equating to the
unwind of the discount on liabilities.

|                                             | 30 June
      2004 | 31 December
      2003 | 31 December
      2002
|-------------------------------------------- | ------------------ | ---------------------- | ----------------------
|                                             | ___________        | ___________            | ___________           
|Discount rate for scheme
    liabilities     | 5.90%              | 5.50%                  | 5.75%                 
|Pension and deferred pension
      increases | 2.80%              | 2.70%                  | 2.40%                 
|General salary increase                      | 4.30%              | 4.20%                  | 3.90%                 
|General price inflation                      | 2.80%              | 2.70%                  | 2.40%                 
|Expected rate of return on
    equities      | 7.25%              | 7.25%                  | 8.00%                 
|Expected rate of return on bonds             | 5.50%              | 5.50%                  | 5.75%                 
|Expected rate of return on gilts             | 4.75%              | 4.75%                  | 4.50%                 
|Expected return on cash                      | 3.60%              | 3.60%                  | 4.50%                 
|                                             | ___________        | ___________            | ___________           



INDEPENDENT REVIEW REPORT TO ABBEY NATIONAL
PLC

Introduction



We have been instructed by the company
to review the financial information for the six months ended 30 June 2004 which
comprises the consolidated profit and loss account, the consolidated balance
sheet, the consolidated statement of total recognised gains and losses and
consolidated cash flow statement. We have read the other information contained
in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.



This report is made solely to the
company in accordance with Bulletin 1999/4 issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the company those
matters we are required to state to them in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work, for
this report, or for the conclusions we have formed.



Directors' responsibilities



The interim report, including the
financial information contained therein, is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
interim report in accordance with the Listing Rules of the Financial Services
Authority which require that the accounting polices and presentation applied to
the interim figures are consistent with those applied in preparing the preceding
annual accounts except where any changes, and the reasons for them, are
disclosed.



Review work performed



We conducted our review in accordance
with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom auditing standards and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.



Review conclusion



On the basis of our review we are not
aware of any material modifications that should be made to the financial
information as presented for the six months ended 30 June 2004.







Deloitte & Touche LLP

Chartered Accountants

25 July 2004



FORWARD LOOKING STATEMENTS

This document contains certain
"forward-looking statements" with respect to certain plans of Abbey National plc
("Abbey") and its current goals, plans, expectations and assumptions relating to
its future financial condition, performance and results. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances, which are beyond Abbey's control. These
include, among other things, UK domestic and global economic and business
conditions, market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory authorities, the impact
of competition, inflation / deflation, the timing, impact and other
uncertainties of future acquisitions or combinations within relevant industries,
as well as the impact of tax and other legislation and other regulations in the
jurisdictions in which Abbey and its affiliates operate. As a result, Abbey's
actual future financial condition, performance and results may differ materially
from the plans, goals, and expectations set forth in Abbey's forward-looking
statements.

OTHER INFORMATION

> 1. The financial information in this
>   interim statement does not constitute statutory accounts as defined in s240 of
>   the Companies Act 1985. The financial information for the full preceding year
>   is based on the statutory accounts for the year ended 31 December 2003. The
>   auditors have reported on those accounts; their report was unqualified and did
>   not contain statements under s237(2) or (3) Companies Act 1985. Those accounts
>   have been delivered to the Registrar of Companies.
>   2. The financial information in this
>   release is prepared on the basis of the accounting policies as stated in the
>   previous year's financial statements.
>   3. The interim statement was approved
>   by the board of directors of Abbey National plc on 25 July 2004.
>   4. The ex-dividend date for Ordinary
>   shares is 18 August 2004; the record date is 20 August 2004; the payment date
>   is 4 October 2004.
>   5. In view of the offer announced by
>   Grupo Santander, it is possible that the scrip dividend arrangement will be
>   suspended for legal reasons.
>   6. A quarterly trading statement will
>   be issued on 27 October 2004.
>   7. The 2004 preliminary results
>   announcement will be released on 24 February 2005.
>   8. This report will also be
>   available on the Abbey website:www.abbey.comfrom 26 July 2004.

Jon Burgess

Head of Investor Relations

For further information contact:

investor@abbey.com

Tel: (020) 7756 4181

(020) 7756 4184



Abbey National plc Registered Office:
Abbey House, 2 Triton Square, Regent's Place, London NW1 3AN

---



# SIGNATURES

Pursuant
  to the requirements of the Securities Exchange Act of 1934, the registrant has
  duly caused this report to be signed on its behalf by the undersigned, thereunto
  duly authorized.

|                   |  | ABBEY NATIONAL PLC                               
|------------------ |  | -------------------------------------------------
|Date: 26 July 2004 |  | By: /s/ Jonathan Burgess                         
|                   |  | Jonathan Burgess
      Head of Investor Relations