Exhibit 4.2

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DATED: 21st October 2002



ABBEY NATIONAL plc



and



LUQMAN ARNOLD



| |                        | 
| | ---------------------- | 
| |                        | 
| | CONTRACT OF EMPLOYMENT | 
| |                        | 
| |                        | 
| |                        | 





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INDEX

|Clause |  | Subject Matter                                    | Page
|------ |  | ------------------------------------------------- | ----
|       |  |                                                   |     
|       |  |                                                   |     
|       |  |                                                   |     
|1      |  | Title and Duration of Employment                  | 1   
|       |  |                                                   |     
|2      |  | Duties                                            | 2   
|       |  |                                                   |     
|3      |  | Place and Hours of Work                           | 3   
|       |  |                                                   |     
|4      |  | Remuneration                                      | 3   
|       |  |                                                   |     
|5      |  | Pension                                           | 3   
|       |  |                                                   |     
|6      |  | Discretionary Benefits                            | 3   
|       |  |                                                   |     
|7      |  | Holidays                                          | 4   
|       |  |                                                   |     
|8      |  | Illness Pay                                       | 4   
|       |  |                                                   |     
|9      |  | Medical Examinations                              | 5   
|       |  |                                                   |     
|10     |  | Confidential Information                          | 5   
|       |  |                                                   |     
|11     |  | Termination of Employment                         | 7   
|       |  |                                                   |     
|12     |  | Financial Services and Markets
          Act 2000 | 12  
|       |  |                                                   |     
|13     |  | Miscellaneous                                     | 12  
|       |  |                                                   |     
|14     |  | Interpretation                                    | 13  



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CONTRACT OF EMPLOYMENT

|OF:                                                                                                              | LUQMAN ARNOLD        
|---------------------------------------------------------------------------------------------------------------- | ---------------------
|                                                                                                                 |                      
|TITLE:                                                                                                           | GROUP CHIEF EXECUTIVE
|                                                                                                                 |                      
|DATED:                                                                                                           | 2002                 
|                                                                                                                 |                      
|This Contract set out the terms
        on which Abbey National plc ("the Company" or "we" or "us") employs you.
|                                                                                                                

|1.  | Title and Duration
          of Employment                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                 
|1.1 | The Company will
        employ you, and you will work for us, as Group Chief Executive.                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                 
|1.2 | Your
        employment as Group Chief Executive will begin on 21 October 2002 ("the
        Commencement Date") and will continue (subject to earlier termination
        as provided in clause 11 below) until terminated either by you or by
        the Company, as follows:
|    |                                                                                                                                                                                                                                                                                 
|    | 1.2.2                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                 
|    | 1.2.3                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                 
|1.3 | You have no continuous
        employment with the Company.                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                 
|1.4 | The Company's retirement age for both men
        and women is the first of the month following their 65th Birthday. Unless
        your employment has terminated at an earlier date, your employment will
    terminate without any further notice on that date.              
|    |                                                                                                                                                                                                                                                                                 

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|2.  | Duties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.1 | You will at all times during your employment
        (unless prevented by incapacity) devote your whole time and attention
        exclusively to the business of the Company (and any Associated Company
        in which you are or may from time to time be involved) and perform such
        duties as the Board shall from time to time require.                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.2 | You are responsible to the Board for the
        execution of agreed policies and for effective management of the Company
        towards the achievement of objectives agreed with the Board from time
        to time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.3 | Subject to the Companies Act 1985 (and any
        Statutory Instruments made thereunder) and the Memorandum and Articles
        of Association of the Company, you will be a member of the Board of Directors
        with effect from 21 October 2002. You will receive a separate letter
        confirming that appointment.                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.4 | You may also be appointed as a Director of
        any Associated Company on such terms particular to that appointment which
        are additional to and not in substitution for the terms of this Contract
        as the Board may from time to time determine.                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.5 | You will not without the prior written consent
        of the Board be employed, engaged, concerned or interested or hold any
        directorships in any business or activity other than the business of
        the Company and its Associated Companies save as a registered holder
        of not more than 3% of any class of publicly quoted securities of any
        company.                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.6 | You will promptly disclose to us and keep
        confidential all inventions, copyright works, designs or technical know-how
        conceived or made by you alone or with others in the course of your employment.
        You will hold all such intellectual property in trust for the Company
        and will do everything necessary or desirable at our expense to vest
        the intellectual property fully in the Company and/or to secure patent
        or other appropriate forms of protection for the intellectual property.
        Decisions as to the protection or exploitation of any intellectual property
        shall be in the absolute discretion of the Company.

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|3.  | Place and Hours of Work                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                     
|3.1 | While your principal place of work will be
        at the Company's registered office in London, you will work at and/or
        travel to such places (inside or outside the United Kingdom) as your
        duties or the Board may require from time to time.                                                                    
|    |                                                                                                                                                                                                                                                                                                                                     
|3.2 | You will work such hours (including as a
        minimum the normal office hours of 9.00 a.m. to 5.00 p.m. Monday to Friday
        inclusive at your place of work) as are needed for the proper performance
        of your duties. You will not be entitled to additional pay for overtime.                                      
|    |                                                                                                                                                                                                                                                                                                                                     
|4.  | Remuneration                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                     
|4.1 | You will be paid an annual salary of £675,000.00
        which shall accrue daily and is payable by equal monthly instalments
        on or about the 19th day of each month by credit transfer to an account
        with the Company or to another suitable bank account nominated by you.                                        
|    |                                                                                                                                                                                                                                                                                                                                     
|4.2 | Your salary is deemed to include any fees
        receivable for holding any office of Director in the Company or its Associated
        Companies.                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                     
|5.  | Pension                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                     
|    | The Company will pay 35% of your annual salary
        (payable monthly) in lieu of pension and death-in-service benefit. Such
        payments shall be made to you direct and/or to any pension or investment
        plan as you shall direct from time to time.                                                                 
|    |                                                                                                                                                                                                                                                                                                                                     
|6.  | Discretionary Benefits                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                     
|6.1 | From time to time the Company may at its
        discretion decide to offer Executive Management Bonus Schemes and/or
        Executive Committee Bonus Schemes and/or Executive Share Option Schemes.
        The terms of any such Schemes will be advised to eligible employees at
        the time that they are made available.

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|6.2 | These benefits do not form part of your
        contractual terms. Although the Board in its absolute discretion may
        grant, vary or withdraw any or all of these benefits, the Company confirms
        that the basis on which you participate in such benefits shall not unreasonably
        be less favourable than any other executive member of the Board in respect
        of these benefits.                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|7.  | Holidays                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|7.1 | In addition to normal Bank and public holidays,
        you are entitled to 30 working days holiday in each year from January
        to December to be taken at such time or times as are agreed with the
        Chairman. You will not, without the consent of the Chairman, carry forward
        any unused part of your holiday entitlement to a subsequent year.                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|7.2 | For the year during which your appointment
        commences or terminates, your holiday entitlement will be calculated
        pro rata to the number of complete months of your employment by the Company
        during that year. On termination of your appointment (unless you have
        been summarily dismissed under clause 11 below) you will either be entitled
        to pay in lieu of outstanding holiday entitlement or be required to repay
        to the Company any salary received for holiday taken in excess of your
        actual entitlement.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|8.  | Illness Pay                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|8.1 | If you are unavoidably absent from work due
        to illness, injury or other incapacity, you will report this fact to
        the Company before 12 noon, where practicable, on the first day of absence
        and thereafter in accordance with the self-certification and Statutory
        Sick Pay Regulations a copy of which is available for inspection from
        the Personnel Department.                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|8.2 | If you are absent from work due to illness,
        injury or other incapacity duly certified in accordance with the provisions
        of clause 8.1 above, you will be paid your normal rate of pay for the
        first six months and half rate of normal salary during the next six months
        in accordance with Statutory Sick Pay Regulations provided that such
        remuneration shall be inclusive of any Statutory Sick Pay to which you
        are entitled by law.                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|9.   | Medical Examinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | During employment on an annual
        basis and/or at any intervening time and at the request and expense of
        the Company you will agree to be examined by a registered medical practitioner
        to be selected by the Company and permit the results to be made available
        on a confidential basis to the Chairman of the Board or such other officer
        of the Company nominated by him and subject always to your rights under
        the Access to Medical Reports Act 1988.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.  | Confidential Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.1 | You acknowledge:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.2 | You agree that during the period
        of your employment by the Company you will:                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Company or any Associated Company which contain
        or refer to any Confidential Business Information;                                                                                                                                                                                                                                                                                                
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                           
|     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | if so requested by the Company, delete all
        Confidential Business Information from any computer discs, tapes or other
        reusable material in your possession or under your custody or control
        and destroy all other documents and tangible items in your possession
        or under your custody or control which contain or refer to any Confidential
        Business Information.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.3 | You agree that you will not at
        any time after termination of your employment disclose to any person,
        firm or company, or make use of, any Confidential Business Information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4 | For the purposes of this paragraph, "Confidential
        Business Information" shall mean all and any information (whether or
        not recorded in documentary form or on computer disc or tape) relating
        to the business methods, corporate plans, management systems, finances
        or financial affairs, maturing new business opportunities or research
        and development projects of the Company or any Associated Company and
        trade secrets, secret formulae, processes, inventions, designs, know-how
        discoveries, technical specifications and other technical information
        relating to the creation, production or supply of any past, present or
        future product or service of the Company or any Associated Company and
        other information to which the Company or any Associated Company attaches
        an equivalent level of confidentiality or in respect of which it owes
        an obligation of confidentiality to any third party:
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                           
|     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | which you shall acquire at any time during
        your employment by the Company (or acquired during any previous employment
        with an Associated Company); and                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                           
|     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | which is not readily ascertainable by persons
        not connected with the Company or any Associated Company either at all
        or without a significant expenditure of labour skill or money.                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.5 | Each provision of this clause
        10 is independent and severable from the remaining provisions and enforceable
        accordingly. If any provision of this clause 10 shall be                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|     | unenforceable for any reason
        but would be enforceable if part of its wording were deleted it shall
        apply with such deletions as may be necessary to make it enforceable.                                                                                                                                                                                      
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                               
|10.6 | You will comply (and ensure that
        your spouse and any minor children comply) with all applicable rules
        of law or codes, London Stock Exchange regulations and any code of conduct
        of the Company from time to time in force in relation to dealings in
        shares, debentures or other securities of the Company or any Associated
        Company.
|     |                                                                                                                                                                                                                                                                                                                                                                               
|11.  | Termination of Employment                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                               
|11.1 | The Company can dismiss you without
        prior notice or pay in lieu (and you will not be entitled to compensation
        or damages) if you:                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                               
|     | (i)                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                               
|     | (ii)                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                               
|     | (iii)                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                               
|     | (iv)                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                               
|     | (v)                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                               
|     | (iv)                                                                                                                                                                                                                                                                                                                                                                          

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|     | (vii)                                                                                                                                                                                                                                                                                                                                                                     | are convicted of an offence under the Companies
        Securities (Insider Dealing) Act 1985, or under any other present or
        future statutory enactment or regulations relating to insider dealings;
        or                                                                                                                                                                                    
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|     | (viii)                                                                                                                                                                                                                                                                                                                                                                    | resign as a Director of the Company or any
        Associated Company (otherwise than at the request of the Company or by
        rotation in accordance with the Articles of Association of the Company
        or Associated Company) or otherwise through your own act or default cease
        to be a director of the Company or Associated Company.                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|11.2 | If your employment
        is terminated by reason of redundancy (as defined under the Employment
        Rights Act 1996) you will be entitled to a redundancy payment calculated
        under the provisions of that Act in addition to any other compensation
        or termination payment due to you by law or under the terms of this Agreement.                 
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|11.3 | Upon termination
        of this contract (for whatever reason) you will, at the request of the
        Company,                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|     | (i)                                                                                                                                                                                                                                                                                                                                                                       | resign from office as a Director
        of the Company and of any Associated Companies without claim for compensation
        and, in the event of your failure to do so, the Company is hereby irrevocably
        authorised to appoint some person in your name and on your behalf to
        sign and deliver such resignation or resignations to the Company and
        to any Associated Companies;
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|     | (ii)                                                                                                                                                                                                                                                                                                                                                                      | return all the Company's or
        Associated Company's documents, computer discs or tapes and all other
        property in your possession and control belonging to or containing any
        confidential information of the Company's business which you have received
        as a Director.                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|11.4 | Notwithstanding
        the termination of this Contract, its terms shall remain in full force
        and effect to the extent that and in respect of any of your or the Company's
        obligations which are expressed to operate after termination or are of
        a continuing nature and may be enforced against either the Company or
        you accordingly.
|     |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                            
|11.5 | If your employment
        under this contract is terminated by reason of the liquidation of the
        Company for the purpose of reconstruction or amalgamation and you are                                                                                                                                                                                           



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|      | offered employment with any concern or undertaking
        resulting from the reconstruction or amalgamation on terms and conditions
        no less favourable than the terms of this Contract then you shall have
        no claim against the Company in respect of the termination of your employment
        under this Contract.                                                                                                                                                                                                                                                                                                    
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|11.6  | If either you or the Company serve notice
        on the other in accordance with clause 1.2 to terminate your employment
        the Company may in its absolute discretion require you to take 'garden
        leave' during such period of notice (up to a maximum of six months) and,
        at the end of such period of garden leave, shall pay you the Termination
        Payment (as defined in clause 11.11) in respect only of the balance (if
        any) of the notice period referred to in clause 1.2.2 or 1.2.3 (as appropriate).                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|11.7  | The Company and you agree that this Contract
        may only be terminated pursuant to clauses 1.2, 1.4, 11.1, 11.8, 11.9
        and 11.10 of this Contract. The Company and you confirm that the liquidated
        damages referred to in clauses 11.8, 11.9 and 11.10 of this Contract
        represent a genuine pre-estimate of the loss it anticipates you will
        suffer by reason of termination of this Contract in the circumstances
        described.                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|11.8  | The Company may terminate this Contract
        at any time without serving on you the period of notice referred to in
        clause 1.2, and in such circumstances, the Company shall pay the Termination
        Payment (as defined in clause 11.11 below) to you in cash by way of liquidated
        damages forthwith upon termination. For the avoidance of doubt, the Termination
        Payment shall not be paid if the Company terminates this Contract under
        clause 11.1.                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|11.9  | If control of the Company is acquired by
        a third party or a group of third parties acting together within the
        meaning of clause 11.12 below (a "change of control"), you may resign
        your employment hereunder and terminate this Contract immediately by
        serving notice of termination in writing on the Company provided that
        such notice is served by you on the Company within 45 calendar days of
        the date on which such change of control takes effect and the Company
        shall pay the Termination Payment to you forthwith upon receipt by the
        Company of such notice.
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|11.10 | The Company agrees that you may at any time
        resign your employment hereunder and terminate this Contract immediately
        by serving notice of termination in writing on the Company if the Company
        acts in repudiatory breach of the terms of                                                                                                                                                                                                                                                                                                                                                                         

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|      | this Contract and, in such circumstances,
        the Company shall pay the Termination Payment to you in cash forthwith
        upon receipt by the Company of such notice by way of liquidated damages
        for such breach. The Company and you agree that a "repudiatory breach" of
        the terms of this Contract shall include, but not be limited to, the
        following circumstances:                
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|11.11 | (A) For the purposes
        of this Contract, the expression "Termination Payment" shall
        mean the amount of your total remuneration for the notice period referred
        to in clause 1.2.3, to include gross salary, pension contributions (under
        clause 5) and (subject to clause 11.11(B) below) an amount equivalent
        to the cost to the Company of providing all your other benefits and:
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
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|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         
|      | (B) As an alternative
        to paying to you an amount equivalent to the cost to the Company of providing
        all your other benefits (as referred to in clause 11.11(A)                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                         

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|      | above) the Company
        may at its sole discretion continue to provide to you all or any such
        benefits for the duration of the notice period.                                                                                                                                                                                                                                                                                                                                                                                                                             
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|11.12 | For the purposes
        of clause 11.9 a "change of control" shall be regarded as having occurred
        in favour of a third party (or group of third parties acting together)
        if:                                                                                                                                                                                                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
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|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|11.13 | If your employment
        is terminated (either by you or by the Company) in circumstances where
        you do not fall within the terms of paragraphs 5.5.1 or 5.5.2 of the
        Rules of the 2001 Executive Share Option Scheme ("the Option Rules")
        and/or paragraph 6.3(b) of the Rules of the Share Matching Scheme (2001
        version) ("the Matching Rules"), then the Company will submit your case
        to the Board for a decision under paragraph 5.5.3 of the Option Rules
        and/or paragraph 6.3(b) of the Matching Rules (as the case may be).
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|11.14 | If you are asked
        to take garden leave you:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



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|     | (iii)                                                                                                                                                                                                                                                                                                                                                | may not be required to carry
        out duties during the remaining period of your employment;                                                                                                                                                                                                           
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|     | (iv)                                                                                                                                                                                                                                                                                                                                                 | must return to the Company all
        documents and other materials (including copies) belonging to the Company
        or Associated Companies containing Confidential Business Information;                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|     | (v)                                                                                                                                                                                                                                                                                                                                                  | may not without the prior written
        permission of the Company contact or attempt to contact any client, customer,
        supplier, agent, professional adviser, broker or banker of the Company
        or any Associated Company or any employee of the Company or any Associated
        Company.
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|     | During any period of garden leave
        you will continue to receive your full salary and benefits, including
        pro rata bonus.                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|12.  | Financial Services and Markets
          Act 2000                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|     | You will comply with the individual
        Statement of Regulatory Accountability under the Financial Services and
        Markets Act 2000 which will be issued to you by the Company. This Statement
        sets out the particular duties and responsibilities which you have under
        that Act and with which you are required to comply.
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|13.  | Miscellaneous                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|13.1 | The further particular terms
        of employment which must be given to you under the Employment Rights
        Act 1996 are:                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|     | (i)                                                                                                                                                                                                                                                                                                                                                  | Membership of the Abbey National
        Staff Stakeholder Pension Scheme can be used by you to contract out of
        the State Earnings Related Pension Scheme if you so wish.                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|     | (ii)                                                                                                                                                                                                                                                                                                                                                 | Any disciplinary or grievance
        matter between you and the Company will be dealt with between you and
        the Chairman or such other director as the Chairman may nominate.                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           
|13.2 | This Contract and the documents
        referred to sets out the entire agreement and understanding between you
        and the Company and is in substitution for any                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                           

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|     | previous contracts of employment or for
        services, all of which are deemed to have been terminated by mutual consent.                                                                                                                                                                                                                                                                                                                                                    
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|13.3 | Save for clause 11 of this Contract, your
        terms and conditions of employment are reviewed by the Remuneration Committee
        from time to time. You will be notified in writing by the Company of
        any changes to these terms and conditions.                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|13.4 | The Company will reimburse to you all travelling,
        hotel, entertainment and other expenses reasonably incurred by you in
        the proper performance of your duties subject to your complying with
        Company guidelines issued from time to time in this respect and to the
        production to the Company of such vouchers or other evidence of actual
        payment of the expenses as the Company may reasonably require.                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|13.5 | We will issue you with a charge or credit
        card which you must only use for Company and Associated Company business
        purposes.                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|13.6 | Any notice given under this contract must
        be in writing. If you wish to terminate your employment, notice will
        be regarded as properly served if you give it to the Chairman or send
        it by post to the Chairman at the Company's registered office. If the
        Company wishes to terminate your employment, notice will be regarded
        as served if given to you personally or if sent by prepaid post to your
        last known home address.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|13.7 | Save and except to the extent that they are
        varied or superseded by this Contract (which shall take precedence in
        the event of any conflict) you will comply with the Policy Statements
        and Codes of Conduct set out in Part 2 of the Company's Employee Handbook
        (as from time to time amended).                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|14.  | Interpretation                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|14.1 | Any reference in this Contract to any Act
        or legislation made under any Act shall include any statutory modification
        or re-enactment of it or the provision referred to.                                                                                                                                                                                                                                                                                        



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|14.2                                                                           | "Associated Company" means a subsidiary
        and any other company which is for the time being a holding company of
        the Company or another subsidiary of any such holding company and the
        expressions "subsidiary company" and "holding company" shall
        have the meaning given to them under Section 736 of the Companies Act
        1985, or such other company or joint venture arrangement in which the
        Company has or from time to time has an interest.
|------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|14.3                                                                           | "The Board" means the Board of
        Directors of Abbey National plc for the time being including any committee
        of the Board duly appointed by it.                                                                                                                                                                                                                                                                                                                                   
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|14.4                                                                           | "The Chairman" means the person
        for the time being who is Chairman of the Board.                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|14.5                                                                           | The "Remuneration Committee" means
        a committee for the time being of the Board who are non-executive directors.                                                                                                                                                                                                                                                                                                                                                                        
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|14.6                                                                           | This Contract is governed by and shall be
        construed in accordance with English law and the English Courts shall
        have exclusive jurisdiction.                                                                                                                                                                                                                                                                                                                                   
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|This contract is
        executed as a Deed on the date first mentioned above.



|                                                                                                                             |  |  | 
|---------------------------------------------------------------------------------------------------------------------------- |  |  | 
|                                                                                                                             |  | 
|The Common Seal of ABBEY
          NATIONAL plc
was hereunto affixed by Order of the
Board of Directors in the presence of : | 
|                                                                                                                             |  | 
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|                                    |  | 
|----------------------------------- |  | 
|Executed as a Deed by LUQMAN ARNOLD |  | 
|                                    |  | 





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