Offer for Abbey Nat. - Part 1

Lloyds TSB Group PLC
31 January 2001


PART 1 OF 3

31 January 2001       

Not for release, publication or distribution in or into the United States,
Canada, Australia or Japan


LLOYDS TSB OFFER FOR ABBEY NATIONAL

Key points

* On 13 December 2000, the Board of Lloyds TSB announced the terms of a
proposal for the acquisition of Abbey National under which Abbey National
Shareholders would be offered 1.5 New Lloyds TSB Shares plus 260 pence in cash
per Abbey National Share. 

* Today Lloyds TSB
- confirms its firm intention to make the Offer, subject to the two
pre-conditions set out in appendix I to this announcement and described below;
- announces details of its business case, which it will commence explaining to
shareholders; and  
- provides estimated year 2000 results, with business as usual operating
profit up 11 per cent. on 1999.

* The Offer represents a 40 per cent. premium* for Abbey National Shareholders
and includes £3.8 billion of cash, as well as a proportionate share of the
expected merger benefits outlined in this announcement.  The Offer values
Abbey National at approximately £19.8 billion.  

* Lloyds TSB has developed an integration plan, based on its considerable and
recent experience of integrating businesses, which is focused on maintaining
and growing the combined revenue base, whilst delivering substantial cost
savings and lowering unit costs. 

* Lloyds TSB estimates that a combination with Abbey National will lead to an
additional contribution to profit before tax from revenue and cost synergies
of £950 million per annum, of which £900 million per annum is expected to be
achieved in the fourth financial year (2005) following completion of the
transaction.  Of this £900 million additional profit, approximately £250
million per annum is estimated to come from increased revenues and
approximately £650 million per annum from reduced costs.**

* The above figures have been estimated without the benefit of discussion with
Abbey National management.  Lloyds TSB invites Abbey National to enter such
discussions, which Lloyds TSB believes could lead to an increase in the
estimate of merger benefits.

* It is expected that the transaction will lead to accretion in Lloyds TSB's
earnings per share (before goodwill amortisation and implementation costs) in
the first financial year (2002) after completion of the transaction.**

* Lloyds TSB believes that the combination of Lloyds TSB and Abbey National's
products, skills and distribution capability will enable the Enlarged Group to
provide enhanced services to customers.  There will be increased scope for
investment in better products, more convenient distribution and superior
customer service.

* On 5 January 2001, Lloyds TSB submitted a Merger Notice to the Office of
Fair Trading with respect to the proposed transaction.  The making of the
Offer is pre-conditional on the transaction not being referred to the
Competition Commission.

* The making of the Offer is also pre-conditional on a decision by the Abbey
National Board to recommend the Offer.  Both of these pre-conditions can be
waived at Lloyds TSB's discretion as set out in appendix I to this
announcement.

* The Board of Lloyds TSB also announces today an estimate of profits for the
year ended 31 December 2000, which was another successful year for the Lloyds
TSB Group, with profit and earnings per share at record levels.  Business as
usual operating profit was up 11 per cent. at £4,246 million.  The quality of
Lloyds TSB's earnings continued to improve with the percentage of income from
non-traditional banking business rising substantially.

* On the basis of the average closing prices for Lloyds TSB Shares of 658
pence and Abbey National Shares of 891 pence for the one month period prior to
3 November 2000, the day Abbey National announced it had approached Bank of
Scotland regarding a possible acquisition, the Offer represents a premium of
40 per cent.

** The statements of estimated revenue benefits and cost savings (and
resulting pre-tax profit enhancement) should be read in conjunction with
appendices V and VI to this announcement.  For the reasons set out in such
appendices, the revenue benefits and cost savings (and resulting pre-tax
profit enhancement) may be materially greater or less than estimated in such
appendices. No part of such statements or the statement relating to earnings
accretion should be interpreted to mean that the earnings per share of Lloyds
TSB for the current or future financial years will necessarily match or exceed
the historical published earnings per share of Lloyds TSB.

Commenting on the transaction, Peter Ellwood, Group Chief Executive of Lloyds
TSB, said:

'Further consolidation in UK financial services is inevitable.  A combined
Lloyds TSB and Abbey National will be a leading player in UK retail financial
services and create significant benefits for customers and substantial value
for shareholders, whilst providing a stronger platform for overseas expansion.
We will shortly be meeting with shareholders to outline the merits of our
case and we continue to invite Abbey National to enter into constructive
discussions with us.'

This summary should be read in the context of the full text of this
announcement, including its appendices.

Enquiries
Lloyds TSB Group plc              Investor Relations
                                   Kent Atkinson              020 7356 1436
                                   Group Finance Director
                                   E-mail: [e-mail]

                                   Michael Oliver              020 7356 2167
                                   Director of Investor Relations
                                   E-mail: [e-mail]

                                   Media
                                   Terrence Collis              020 7356 2078
                                   Director of Group Corporate Communications
                                   E-mail: [e-mail]

Financial advisers

J.P. Morgan                       Terry Eccles              020 7325 4169
Merrill Lynch                     Matthew Greenburgh        020 7573 1184
Corporate brokers
Hoare Govett                      Andrew Thompson           020 7678 1363
Schroder Salomon Smith Barney     Atholl Turrell            020 7986 1283

The full press release and related slide pack can also be found on the
internet at http://www.lloydstsb.com

Merrill Lynch and J.P. Morgan, which are regulated in the United Kingdom by
The Securities and Futures Authority Limited, are acting for Lloyds TSB and
no-one else in connection with the Offer and will not be responsible to anyone
other than Lloyds TSB for providing the protections afforded to the customers
of Merrill Lynch and J.P. Morgan, nor for giving advice in relation to the
Offer.

This announcement does not constitute an offer or invitation to purchase any
securities.

The availability of the Offer to persons outside the UK may be affected by the
laws of the relevant jurisdiction.  Such persons should inform themselves
about and observe any applicable requirements.  Unless otherwise determined by
Lloyds TSB, the Offer will not be made, directly or indirectly, in or into, or
by the use of the mails or by any means or instrumentality (including, without
limitation, telephonically or electronically) of interstate or foreign
commerce of, or any facilities of a national, state or other securities
exchange of, the United States, Canada, Australia or Japan and will not be
capable of acceptance by any such use, means, instrumentality or facility
within the United States, Canada, Australia or Japan.  Accordingly, copies of
this announcement are not being, and must not be, mailed, or otherwise
forwarded, distributed or sent in, into or from the United States, Canada,
Australia or Japan and persons receiving this announcement (including
custodians, nominees and trustees) must not distribute or send it in, into or
from the United States, Canada, Australia or Japan.  Doing so may invalidate
any related purported acceptance of the Offer.

Certain statements in these materials are 'forward looking statements'. All
forward looking statements involve risks and uncertainties and are based on
current expectations regarding important factors. Statements contained herein
regarding the consummation and benefits of the proposed transaction, as well
as expectations with respect to the ability to sustain margins and realisation
of financial and operating synergies and efficiencies, are subject to known or
unknown risks, uncertainties and contingencies, many of which are beyond the
control of Lloyds TSB, which may cause actual results, performance, or
achievements to differ materially from anticipated results, performance, or
achievements.  Factors that might cause forward looking statements to differ
materially from actual results include, among other things, requirements
imposed by regulatory authorities either to permit the transaction to be
consummated or otherwise, competitive factors in the industries in which
Lloyds TSB and Abbey National compete, changes in the monetary and interest
rate policies of the Bank of England and other G7 central banks, inflation,
deflation, the timing, impact, and other uncertainties of future acquisitions
or combinations within relevant industries, fluctuations in interest rates,
equity prices and foreign currencies, the adequacy of loss reserves, the
inability to hedge certain risks economically, changes in consumer spending
and other habits, as well as the impact of tax and other legislation and other
regulations in the jurisdictions in which Lloyds TSB and Abbey National and
their respective affiliates operate.

Not for release, publication or distribution in or into the United States,
Canada, Australia or Japan

LLOYDS TSB OFFER FOR ABBEY NATIONAL

The Offer

Lloyds TSB will offer 1.5 New Lloyds TSB Shares plus 260 pence in cash for
each Abbey National Share.  The Offer will also include a Mix and Match
Election and a Loan Note Alternative.  Further details of the Offer are set
out in appendices II and III to this announcement.  

The making of the Offer and the posting of the Offer documentation will take
place following satisfaction or waiver of the pre-conditions set out in
appendix I to this announcement, namely confirmation that the proposed
transaction will not be referred to the Competition Commission and the Abbey
National Board agreeing to recommend the Offer.  Both of these pre-conditions
may be waived at Lloyds TSB's discretion.  

If the pre-conditions are not satisfied, Lloyds TSB will make its decision
with regard to the waiver of these pre-conditions once it has heard the terms
of the final decision by the Secretary of State for Trade and Industry as to
whether or not the proposed acquisition will be referred to the Competition
Commission, and once it has had the opportunity to meet with Abbey National
Shareholders which it intends to do following this announcement.

On the basis of the average closing prices for Lloyds TSB and Abbey National
Shares for the one month period prior to 3 November 2000 (the day Abbey
National announced it had approached Bank of Scotland regarding a possible
acquisition), the Offer represents a premium of 40 per cent. and includes £3.8
billion of cash on a fully diluted basis.  This cash amount will be financed
by the issue of new tier one and tier two capital and from internal resources.

For Abbey National Shareholders, dividend and interest income from the New
Lloyds TSB Shares and cash they will receive under the Offer will (based on
historical figures) be 26.7 per cent. higher than the dividend income from
their Abbey National Shares.

Following the transaction, Abbey National Shareholders will own approximately
28 per cent. of the Combined Group, and will therefore benefit from the
substantial synergies that are expected to be generated as a result of the
transaction.  Abbey National Shareholders will also benefit from a more
diversified business mix and the Combined Group's enhanced ability to generate
income growth and to increase shareholder value.

Lloyds TSB estimates that the combination of Lloyds TSB and Abbey National
will lead to accretion in Lloyds TSB's earnings per share (before goodwill
amortisation and implementation costs) in the first financial year (2002)
after completion of the transaction.*

Lloyds TSB believes the value created for Abbey National Shareholders by its
proposal will be significantly greater than that available from either Abbey
National remaining independent or a merger of Abbey National and Bank of
Scotland.

The Offer will be for all the issued and to be issued Abbey National Shares
and will be made by Merrill Lynch and J.P. Morgan on behalf of Lloyds TSB.

The New Lloyds TSB Shares to be issued pursuant to the Offer will be issued
credited as fully paid and will rank pari passu in all respects with the
existing Lloyds TSB Shares.
 
The Offer will also be subject to the terms and conditions set out in appendix
III to this announcement and to the further terms to be set out in the formal
Offer Document and the Form of Acceptance.  In particular, the Offer will be
conditional on approval by Lloyds TSB Shareholders and satisfaction of certain
regulatory conditions.

Rationale for the combination of Lloyds TSB and Abbey National

The Board of Lloyds TSB believes that intensifying competition, changes in
technology and consumer demand are driving the consolidation of the financial
services industry across Europe, the US and other major markets.  Companies
with clear strategies, integrated multi-channel distribution, cost efficiency,
trusted brands and which create value for customers will be the winners.  

Lloyds TSB believes the proposed transaction will create benefits for
customers and value for shareholders by strengthening its position in its
chosen markets, improving its offer to customers and increasing efficiency,
thereby enabling further investment for growth.

Lloyds TSB estimates that a combination with Abbey National will lead to an
additional contribution to profit before tax from revenue and cost synergies
of £950 million per annum of which £900 million per annum is expected to be
achieved in the fourth financial year (2005) following completion of the
transaction.  Of this £900 million additional profit, approximately £250
million per annum is estimated to come from increased revenues and
approximately £650 million per annum from reduced costs. **  
                         
* This statement should not be interpreted to mean that the earnings per share
of Lloyds TSB for the current or future financial years will necessarily match
or exceed the historical published earnings per share of Lloyds TSB.

It is expected that the transaction will lead to accretion in Lloyds TSB's
earnings per share (before goodwill amortisation and implementation costs) in
the first financial year (2002) after completion of the transaction.  On the
same basis, the return on equity to be issued in connection with this
transaction is expected to exceed Lloyds TSB's cost of equity during the
second financial year (2003).**

The transaction is consistent with Lloyds TSB's intention to pursue
international opportunities, as the combination of the two companies will
create a stronger platform for overseas expansion.  The Combined Group will be
a leader in its home market and one of the largest financial services groups
in Europe.

A leader in retail financial services

A combined Abbey National and Lloyds TSB will be a leading UK retail financial
services group, offering customers a more extensive range of products and
services.  Lloyds TSB is confident that the economies of scale which the
transaction is expected to deliver will increase the Combined Group's
competitiveness in major retail financial services markets.  Following
completion of the transaction, the Combined Group's products and services will
be accessed from a broad range of distribution channels.  Abbey National
personal customers who currently use Abbey National's 722 branches will also
be able to use more than 2,200 Lloyds TSB branches.

In addition to the branch and ATM networks, personal customers of the Combined
Group will be offered a broad range of delivery channels, including access to
one of the largest telephone banking operations in Europe, one of the most
visited financial websites in Europe and digital TV, thereby giving them more
choice and greater flexibility when carrying out their financial transactions.
Lloyds TSB also intends to extend its agency agreement with the Post Office
to include Abbey National personal customers.  

The Combined Group will be in a better position to invest in growth markets,
including e-commerce and internet banking, which are revolutionising the way
in which products and services are delivered to customers. 
             
** The statements of estimated revenue benefits and cost savings (and
resulting pre-tax profit enhancement) should be read in conjunction with
appendices V and VI to this announcement.  For the reasons set out in such
appendices, the revenue benefits and cost savings (and resulting pre-tax
profit enhancement) may be materially greater or less than estimated in such
appendices.  No part of such statements or the statements relating to earnings
accretion or return on equity issued should be interpreted to mean that the
earnings per share of Lloyds TSB for the current or future financial years
will necessarily match or exceed the historical published earnings per share
of Lloyds TSB.

Management and integration

As previously announced, Sir Brian Pitman will retire as Chairman of the
Lloyds TSB Board in April 2001 and Deputy Chairman Maarten van den Bergh will
assume the Chairmanship.  On completion of the transaction, Maarten van den
Bergh and Peter Ellwood will be Chairman and Chief Executive, respectively, of
the Combined Group.

Lloyds TSB's management has extensive and recent experience in managing and
integrating the types of businesses in which Abbey National operates.  Lloyds
TSB has overseen the successful integration of similar businesses, including
Cheltenham & Gloucester, TSB and Scottish Widows.  

As in Lloyds TSB's prior mergers, the senior management team of the Combined
Group will be structured to reflect the strong talent in both institutions.

On completion of the transaction, most business and product groups (e.g. life
assurance, personal banking, wealth management) and head office functions of
Lloyds TSB and Abbey National will be combined.  The individual business and
function executives will be responsible for the delivery of savings and
revenue benefits directly associated with their respective businesses.  

The Abbey National branch network will remain separate for two years.  During
this period, the integration of systems and of administrative functions will
be completed and there will be extensive work in identifying and sharing best
practices across the Combined Group.  For example, Lloyds TSB will benefit
from the skills and expertise which the wider business activities of Abbey
National Treasury Services will bring to the Combined Group.

Branding and distribution strategy

The Combined Group will benefit from a portfolio of strong and trusted brands
and customers will have access to a broad range of distribution channels.  To
maximise the opportunity to grow revenues and minimise disruption to
customers, Lloyds TSB will not make any early changes to the Abbey National
brand or branch network as a result of the transaction. 

Branch network

Lloyds TSB will maintain Abbey National's brand and presence on the high
street, with no Abbey National branch closures resulting from the transaction,
for at least two years.  After two years, Lloyds TSB will begin a programme to
bring together ('co-locate') Lloyds TSB and Abbey National branches in the
more than 600 locations where they are within 0.25 miles of each other.  As in
the merger of Lloyds Bank and TSB, and following extensive market and customer
research, Lloyds TSB will choose the branding and distribution strategy that
will best meet the needs of customers and at the same time enhance shareholder
value.

Lloyds TSB believes that the proposed co-location programme will have minimal
impact on the combined customer and revenue base.  Since the merger of Lloyds
Bank and TSB, Lloyds TSB has successfully co-located some 340 branches.  As a
result of Lloyds TSB's focus on maintaining customer service, the co-location
programme was achieved with an increase in customer recruitment and negligible
incremental customer attrition.  Measures to ensure this included

-       refurbishment and improvement of premises
-       continuity of staff from both branches
-       maintenance of existing products and systems during co-location
-       strict monitoring of customer-facing activities to avoid disruption

Lloyds TSB assesses the impact of all branch co-locations.  The majority of
cost savings from the co-location programme are non-staff related.  For the
250 branches co-located during 1999, customer recruitment was 11.5 per cent.
better than experienced by those branches in the previous year, and attrition,
as a result of co-location, has been less than 0.1 per cent.

Mortgages and savings

Initially, all existing brands will be retained (Abbey National and Cheltenham
& Gloucester for mortgages; Abbey National, Cheltenham & Gloucester and Lloyds
TSB for savings), with streamlined product development and processing systems.
 In the longer term, mortgage and savings brand strategy will be determined by
Lloyds TSB's market experience and ongoing customer research.

Long term savings

Scottish Widows will be the principal brand for life, pensions and unit trusts
sold through both the branch network and via the IFA channel.  However,
depending on the outcome of a detailed review of the brands, the Abbey
National Life brand will be used in Abbey National branches until the branch
networks become integrated.

Scottish Mutual and Scottish Provident are leading brands in the with-profit
bonds and protection markets respectively, selling principally through the IFA
channel.  It is intended that, initially, the Scottish Mutual and Scottish
Provident brands will remain separate from Scottish Widows for use in those
particular segments of the IFA market.

Investment management

Scottish Widows Investment Partnership will be the brand for the asset
management operation of the Combined Group.


Estimated revenue benefits

The Board of Lloyds TSB estimates that the combination of Lloyds TSB and Abbey
National will enable the Combined Group to generate increased revenue of
approximately £450 million per annum in the fourth financial year (2005)
following completion of the transaction, which, after bad and doubtful debt
provisions, costs and insurance claims, is expected to result in an additional
contribution to profit before tax of approximately £250 million per annum in
the same year.  These figures accommodate potential customer loss.

The Board of Lloyds TSB estimates that the additional contribution to profit
before tax from revenue benefits will occur in the following key areas

* Personal banking (£80 million) - Lloyds TSB believes that, by introducing
its sales processes and differentiated products, Lloyds TSB will improve
cross-sales of, inter alia, personal loans and credit cards to Abbey National
customers.  Lloyds TSB will also introduce its added value accounts, which
offer travel insurance, roadside assistance cover and other services, to Abbey
National customers

* Business banking and asset finance (£80 million) - Lloyds TSB has been
successful in winning the business accounts of TSB customers.  Lloyds TSB
believes it can achieve similar success with Abbey National's personal
customers going into or presently running their own businesses.  In asset
finance, Lloyds TSB is confident that its combination of customer
segmentation, mailing management, risk management and delivery through central
and branch channels will increase the cross-sale of personal loans and related
products to the First National customer base

* General insurance (£70 million) - Lloyds TSB is a market leader in the
distribution of personal lines insurance in the UK, one of the largest
distributors of payment protection insurance and the largest distributor of
household insurance.  Abbey National's large customer base provides a
substantial opportunity to increase sales of general insurance products
further, particularly payment protection and household insurance 

* Wealth management (£20 million) - Lloyds TSB believes it can generate
increased revenues from extending its wealth management products and services
to Abbey National customers and from increased sales of life, pensions and
unit trust products

As well as extending its delivery channels and providing additional products
to Abbey National customers, Lloyds TSB will introduce its customer management
capabilities into the Abbey National network.  Lloyds TSB was identified in a
recent industry survey as the UK's leading financial services company in the
cross-sale of products and services to its personal customers.  Lloyds TSB has
an average 2.30 Lloyds TSB products per personal customer whilst Abbey
National has an average 1.75 Abbey National products per personal customer. 
Furthermore, Lloyds TSB's mortgage customers hold on average 4.55 Lloyds TSB
products.

The above estimated revenue benefits are given in the money of the year in
which they are expected to be achieved.

Appendix V to this announcement sets out the Directors' statement of estimated
revenue benefits and resulting profit increase (and the bases and assumptions
on which it is made), together with supporting letters from
PricewaterhouseCoopers and Merrill Lynch and J.P. Morgan.*

Estimated cost savings

Lloyds TSB and Abbey National overlap in each of Abbey National's main areas
of operation, providing the potential for substantial cost savings.  Based on
public information and industry benchmarks, Lloyds TSB has estimated
significant cost savings from a transaction with Abbey National.  Taking into
account its experience from the successful integration of Cheltenham &
Gloucester, TSB and Scottish Widows, Lloyds TSB expects to realise cost
savings by removing duplicated costs and achieving greater economies of scale.
 Lloyds TSB believes, based on its proven skills and processes, that it is a
leader in change management and merger integration.  

The Board of Lloyds TSB estimates that the transaction will result in
annualised cost savings of at least £700 million in the fifth financial year
(2006) following completion of the transaction, of which £650 million is
expected to be achieved in the fourth financial year (2005) following
completion of the transaction.  

Furthermore, Lloyds TSB believes that discussions with Abbey National could
lead to an increase in these annualised cost savings.  The cost of achieving
the estimated cost savings is expected to be approximately £1.1 billion.

Lloyds TSB estimates that, in the fourth financial year (2005) following
completion of the transaction, the combination of central functions will
deliver savings of £165 million, the integration of retail banking networks
and systems will deliver savings of £250 million and the combination of other
businesses will deliver savings of £235 million.  

Lloyds TSB believes that the estimated cost savings can be realised with
minimal impact on the combined customer and revenue base and will arise from
the following key areas

* Head office and retail headquarter integrations; IT consolidation, including
the merger of personal banking systems, data centres and networks; combining
central operations including mailing, bulk processing, clearings and
administration; purchasing benefits through the larger scale of the combined
operations; and combining central functions

* Combining the operations, systems and administration in support of retail
banking and mortgages, including the integration of customer service centres;
back offices; processing centres; telephone centres; and e-commerce operations
and systems

* Co-locating branches, the emphasis being on minimising customer disruption

* Combining the operations, systems and support functions of Lloyds TSB's and
Abbey National's respective life, pensions, investments, general insurance,
asset finance and wealth management businesses

The above estimated cost savings are given in the money of the year in which
they are expected to be achieved.

Appendix VI to this announcement sets out the Directors' statement of
estimated cost savings (and the bases and assumptions on which it is made),
together with supporting letters from PricewaterhouseCoopers and Merrill Lynch
and J.P. Morgan.*

Lloyds TSB's integration track record

Lloyds TSB's management has extensive and recent experience in managing and
integrating the types of businesses in which Abbey National operates.  Lloyds
TSB has delivered value for its shareholders through its acquisitions and
mergers.  Lloyds TSB's performance since the merger of Lloyds Bank and TSB in
1995 demonstrates its ability to add substantial value through in-market
consolidation.  

Between 1995 and 1999 (the stated time period for the realisation of the
benefits from the merger of Lloyds Bank and TSB), Lloyds TSB reduced its
expense base by over £400 million and its efficiency ratio improved from 60
per cent. to 43 per cent.  This strong cost management, combined with 6 per
cent. compound annual growth in revenue, has been the main contributor to the
delivery of 30 per cent. compound annual growth in economic profit over the
same period.

Lloyds TSB is today selling more retail products and serving more personal
customers than it has ever done, an indication of its ability to continue to
meet the increased demands of its customers whilst delivering merger benefits.

* The statements of estimated revenue benefits and cost savings (and resulting
pre-tax profit enhancement) should be read in conjunction with appendices V
and VI to this announcement.  For the reasons set out in such appendices, the
revenue benefits and cost savings (and resulting pre-tax profit enhancement)
may be materially greater or less than estimated in such appendices. No part
of such statements or the statement relating to earnings accretion should be
interpreted to mean that the earnings per share of Lloyds TSB for the current
or future financial years will necessarily match or exceed the historical
published earnings per share of Lloyds TSB.

Lloyds TSB is currently rolling out the Delivering One Bank (DOB) programme,
which standardises the Lloyds Bank and TSB back office processes and migrates
the Lloyds Bank personal customers onto the online real-time TSB system.  The
DOB programme will be completed in the second half of this year.  DOB was
designed to be able to support substantial acquisitions.  It supports multiple
products and brands and is scalable to the volumes required by Abbey
National's business.  Other supporting systems, including mortgages, will also
be combined.

Benefits for Abbey National customers

Lloyds TSB is confident that the transaction will deliver considerable
benefits to Abbey National customers including

* A more extensive range of products and services

* A wider range of delivery channels for personal customers.  Abbey National
personal customers who currently use Abbey National's 722 branches will also
be able to use more than 2,200 Lloyds TSB branches and have access to
telephone banking and other direct services

* Access to 17,500 Post Offices to enable Abbey National personal customers to
carry out their basic banking transactions

* For Abbey National small business customers, full access to Lloyds TSB's
range of services and business relationship managers

Benefits for staff

The merger of Lloyds Bank and TSB has provided wider development and career
opportunities for staff.  Lloyds TSB is confident that a transaction with
Abbey National will also improve career opportunities for the substantial
majority of the employees of the Combined Group. 

Lloyds TSB invests substantially each year in training, education, career and
personal development programmes through its corporate university for Lloyds
TSB, which recently received an award for innovation and excellence in the
field of corporate learning.  Lloyds TSB will also extend to Abbey National
staff its highly acclaimed Work Options programme which provides staff with
the opportunity to seek flexibility in determining their work schedules.

Over 80 per cent. of Lloyds TSB's UK employees and the majority of Abbey
National's employees are shareholders of their respective companies and, as
such, will benefit from the value created by the proposed transaction.

It is estimated that the transaction will result in a loss over four years of
approximately 9,000 jobs from a Combined Group with over 100,000 staff.  It is
envisaged that this will 
be achieved with minimal compulsory redundancies, as was Lloyds TSB's
experience following the merger of Lloyds Bank and TSB.  Lloyds TSB's normal
staff turnover is currently approximately 9 per cent. per annum.

The existing employment rights, including pension rights, of the employees of
Lloyds TSB and Abbey National will be fully safeguarded.  The union with the
largest staff membership within Lloyds TSB, LTU has indicated that it supports
the case for a merger as being in the interests of both Lloyds TSB and Abbey
National staff.

Benefits for the community

Lloyds TSB is already the largest corporate giver in the UK.  Since the merger
of Lloyds Bank and TSB, the Lloyds TSB Foundations have received £99 million
to distribute to charities and are expected to receive a further £34 million
in 2001.  Based on present levels of Abbey National profits, the transaction
will lead to the Foundations receiving an additional £15 million per annum.

Following the transaction, Lloyds TSB will extend to Abbey National branches
its current policy (announced at its last Annual General Meeting) not to close
the last branch in town.  In addition, Lloyds TSB intends to have a programme
to locate ATMs in remote locations and other areas lacking such facilities.

ESTIMATED 2000 RESULTS

The following is the Directors' estimate of the results of the Lloyds TSB
Group for the year ended 31 December 2000, which is made on the bases and
assumption set out in appendix IV to this announcement.

                                               2000           1999    Increase
                                                 £m              £m       %

Business as usual operating profit              4,246          3,821      11

Short-term fluctuations in investment           (119)             28
returns*       

Changes in economic assumptions*                 127              -

Exceptional restructuring costs*                (188)             -

Pension provisions                              (100)           (102)

Stakeholder pension related charge               (80)             -

Loss on sale and closure of businesses             -            (126)
                                                _____         ______     ______

Statutory profit before tax                     3,886          3,621       7
                                                 _____        ______     ______

Profit attributable to shareholders              £2,724m       £2,514m     8

Earnings per share                                49.6p          46.2p     7

* See appendix IV note 2(c)
              

Lloyds TSB's results for 2000 were good, with an 11 per cent. growth in
business as usual operating profit to £4,246 million.  Profit before tax on a
statutory basis rose by 7 per cent. to £3,886 million.  Retained profit for
the year was over £1 billion,** reflecting the significant capital generation
within the Group.

Income again grew satisfactorily, with continuing margin pressure in retail
markets more than offset by good volume growth in a number of areas.  Lloyds
TSB achieved a record level of product sales, market share gains in a number
of its core markets and an increase in non-interest income to approximately 46
per cent. of total income.  
                        
** On the basis of the Directors' current dividend intentions.

The results of Scottish Widows have been incorporated into Group results from
3 March 2000.  The integration of the Group's bancassurance business with
Scottish Widows continues to progress smoothly and, during the second half of
2000, pro forma new business premiums for the combined Lloyds TSB
bancassurance and Scottish Widows life, pensions and unit trust businesses
increased by more than 15 per cent. compared with the same period in 1999.  In
2000, the contribution from Insurance and Investments represented
approximately one third of Group profit, with more than half of this from
life, pensions and other long-term investment products.

Credit quality remains good, reflecting a continuation of Lloyds TSB's prudent
lending policy, and the charge for bad and doubtful debt provisions for 2000
was approximately £100 million lower than in 1999.

As previously anticipated, Lloyds TSB incurred £188 million exceptional
restructuring costs in 2000.  E-commerce investment costs totalled
approximately £150 million.  Cost control will remain very important but a
core element of Lloyds TSB's strategies is to continue to increase investment
to underpin further Lloyds TSB's competitiveness and revenue growth
opportunities.  These strategies are aimed at increasing economic profit from
many of the Group's higher growth markets, particularly wealth management,
long-term savings and investments, business banking and the further
segmentation of its core retail franchise.  Accordingly, the Group's
efficiency ratio is expected to improve further over time but Lloyds TSB no
longer believes that it is appropriate to be constrained by a separate
efficiency ratio target.

During the year Lloyds TSB has built on its extensive distribution capability.
 In addition to an extensive network of branches, it has one of the largest
telephone banking businesses in Europe with over 1.9 million customers and,
with over 1 million registered online customers, lloydstsb.com is consistently
one of the most visited financial websites in Europe.  The Group's
distribution capability will be further improved within the next few months as
the significant benefits of its IT integration are delivered.  Lloyds TSB will
offer online real-time banking for all its personal customers, a facility
which will become increasingly important in the internet world.

During December 2000, the adequacy of the provision for redress to past
purchasers of pension policies was reviewed in the light of the changes
arising from SERPS adjustments, further experience and improved knowledge as
to the number and size of compensation claims likely to be paid.  The cost of
redress is forecast to increase by £100 million and an additional provision of
this amount has been made.

Stakeholder pensions will be introduced from 6 April 2001, with charges on
these new products being limited by the UK Government to a maximum of 1 per
cent. per annum.  In order not to disadvantage existing pensions customers,
charges will be reduced on the Group's existing book.  This will have the
effect of reducing future cash flows in the Group's embedded value calculation
and a one-off charge of £80 million has therefore been made to the 2000 profit
and loss account.

On 1 September 2000, the Group acquired Chartered Trust Group, the UK consumer
finance business of Standard Chartered Bank.  Chartered Trust's results have
been consolidated in the Group's accounts from that date.

2000 was another successful year for the Lloyds TSB Group, with both profit
and earnings per share at record levels.  The quality of Lloyds TSB's earnings
continued to improve and the percentage of income from non-traditional banking
business rose substantially.

Merrill Lynch and J.P. Morgan, which are regulated in the United Kingdom by
The Securities and Futures Authority Limited, are acting for Lloyds TSB and
no-one else in connection with the Offer and will not be responsible to anyone
other than Lloyds TSB for providing the protections afforded to the customers
of Merrill Lynch and J.P. Morgan, nor for giving advice in relation to the
Offer.

This announcement does not constitute an offer or invitation to purchase any
securities.

The availability of the Offer to persons outside the UK may be affected by the
laws of the relevant jurisdiction.  Such persons should inform themselves
about and observe any applicable requirements.  Unless otherwise determined by
Lloyds TSB, the Offer will not be made, directly or indirectly, in or into, or
by the use of the mails or by any means or instrumentality (including, without
limitation, telephonically or electronically) of interstate or foreign
commerce of, or any facilities of a national, state or other securities
exchange of, the United States, Canada, Australia or Japan and will not be
capable of acceptance by any such use, means, instrumentality or facility
within the United States, Canada, Australia or Japan.  Accordingly, copies of
this announcement are not being, and must not be, mailed, or otherwise
forwarded, distributed or sent in, into or from the United States, Canada,
Australia or Japan and persons receiving this announcement (including
custodians, nominees and trustees) must not distribute or send it in, into or
from the United States, Canada, Australia or Japan.  Doing so may invalidate
any related purported acceptance of the Offer.

Certain statements in these materials are 'forward looking statements'. All
forward looking statements involve risks and uncertainties and are based on
current expectations regarding important factors. Statements contained herein
regarding the consummation and benefits of the proposed transaction, as well
as expectations with respect to the ability to sustain margins and realisation
of financial and operating synergies and efficiencies, are subject to known or
unknown risks, uncertainties and contingencies, many of which are beyond the
control of Lloyds TSB, which may cause actual results, performance, or
achievements to differ materially from anticipated results, performance, or
achievements.  Factors that might cause forward looking statements to differ
materially from actual results include, among other things, requirements
imposed by regulatory authorities either to permit the transaction to be
consummated or otherwise, competitive factors in the industries in which
Lloyds TSB and Abbey National compete, changes in the monetary and interest
rate policies of the Bank of England and other G7 central banks, inflation,
deflation, the timing, impact, and other uncertainties of future acquisitions
or combinations within relevant industries, fluctuations in interest rates,
equity prices and foreign currencies, the adequacy of loss reserves, the
inability to hedge certain risks economically, changes in consumer spending
and other habits, as well as the impact of tax and other legislation and other
regulations in the jurisdictions in which Lloyds TSB and Abbey National and
their respective affiliates operate.

APPENDIX I

Pre-conditions of the Offer

The making of the Offer will take place once the following pre-conditions are
satisfied or waived

(a) the Office of Fair Trading having indicated, in terms satisfactory to
Lloyds TSB, that it is not the intention of the Secretary of State for Trade
and Industry to refer the proposed acquisition of Abbey National by any member
of the Lloyds TSB Group or any matter arising therefrom to the Competition
Commission; and

(b) the Board of Abbey National having resolved to give an unqualified and
unconditional recommendation to its shareholders to accept the Offer.

Lloyds TSB reserves the right to waive, in whole or in part, the above
pre-conditions.  

APPENDIX II

Further details of the Offer

1. The Offer

The making of the Offer is subject to the satisfaction or the waiver of the
pre-conditions set out in appendix I to this announcement.  The Offer will be
subject to the terms and conditions set out below and in appendix III and to
the further terms to be set out in the Offer Document and the Form of
Acceptance.  The principal terms of the Offer are as follows:

For each Abbey National Share        1.5 New Lloyds TSB Shares 
                                     and 260 pence in cash

The Offer will also include a Mix and Match Election and a Loan Note
Alternative.

On the basis of the closing middle market price of a Lloyds TSB Share of 735
pence on 30 January 2001, the latest practicable date prior to this
announcement, the Offer values each Abbey National Share at 1,362.5 pence and
the fully diluted ordinary share capital of Abbey National at approximately
£19.8 billion.

Application will be made to the UK Listing Authority and the London Stock
Exchange for the New Lloyds TSB Shares to be admitted to listing on the
Official List and to trading on the London Stock Exchange's market for listed
securities.  The New Lloyds TSB Shares to be issued pursuant to the Offer will
be issued credited as fully paid and will rank pari passu in all respects with
the existing Lloyds TSB Shares.  For the avoidance of doubt, the New Lloyds
TSB Shares will not rank for the final dividend payable in respect of the year
ended 31 December 2000.

The Abbey National Shares which are the subject of the Offer will be acquired
by Lloyds TSB fully paid and free from all liens, charges and encumbrances,
rights of pre-emption and any other third party rights and interests of any
nature whatsoever and together with all rights now or hereafter attaching
thereto, including the right to receive and retain all dividends and other
distributions declared, made or payable after the date of this announcement,
save that Abbey National Shareholders shall be entitled to receive and retain
the final dividend payable in respect of the year ended 31 December 2000.

Following full implementation of the Offer, Lloyds TSB Shareholders will hold
approximately 72 per cent. of the issued ordinary share capital of the
Combined Group, while existing Abbey National Shareholders will hold
approximately 28 per cent. of the Combined Group.  

Fractions of New Lloyds TSB Shares will not be allotted or issued to accepting
Abbey National Shareholders.  Fractional entitlements to New Lloyds TSB Shares
will be aggregated and sold in the market and the net proceeds of sale
distributed pro rata to the Abbey National Shareholders entitled thereto, save
that individual entitlements to amounts of less than £3.00 will be retained
for the benefit of the Combined Group.

2. Loan Note Alternative

As an alternative to any or all of the cash consideration to which they would
otherwise be entitled under the Offer, accepting Abbey National Shareholders
(other than certain overseas shareholders) will be entitled to elect to
receive Loan Notes to be issued by Lloyds TSB on the following basis:

       For every £1 of cash consideration       £1 nominal of Loan Notes

The Loan Notes will bear interest, from the date of issue to the relevant
holder of Loan Notes, at a rate of half a per cent. below LIBOR for six month
sterling deposits determined on the first business day of the relevant
interest period.  Interest will be payable (less any tax required by law to be
deducted therefrom) in arrears on 31 March and 30 September in each year.  The
first interest payment date will be 30 September 2001 in respect of the period
from and including the date(s) of issue of Loan Notes to relevant holder(s) up
to (but excluding) 30 September 2001.  Holders of Loan Notes will have the
right to redeem at par all or some (being £100 in nominal amount or any
integral multiple thereof) of their Loan Notes on the first interest payment
date falling more than six months after the date of issue of the Loan Notes
and on subsequent interest payment dates.  If at any time the aggregate amount
of all the Loan Notes outstanding is less than £100 million, Lloyds TSB shall
have the right, on any interest payment date falling more than six months
after the date of issue of the Loan Notes, to repay all the outstanding Loan
Notes at par together with accrued but unpaid interest.  Unless previously
redeemed or purchased, the Loan Notes will be redeemed at par together with
all accrued but unpaid interest on the first interest payment date falling
after the fifth anniversary of the date upon which the Offer becomes or is
declared unconditional in all respects.
 
The Loan Notes will be issued in registered form in integral multiples of £1
nominal amount, will be transferable (subject to certain restrictions) and
will constitute unsecured obligations of Lloyds TSB.  The Loan Notes will not
contain any restriction on borrowings or charging or disposal of assets by
Lloyds TSB.  All fractional entitlements to Loan Notes will be disregarded and
not paid.  No application will be made to any stock exchange for the Loan
Notes to be listed.

The availability of the Loan Note Alternative will be subject to Abbey
National Shareholders electing to receive Loan Notes having an aggregate value
in excess of £100 million (or such lesser amount as Lloyds TSB may decide).

Details of the terms and conditions of the Loan Notes will be set out in the
Offer Document.


3. Mix and Match Election

Abbey National Shareholders (other than certain overseas shareholders) who
validly accept the Offer may elect, subject to availability, to vary the
proportions in which they receive New Lloyds TSB Shares and cash in respect of
their holdings of Abbey National Shares.  However, the total number of New
Lloyds TSB Shares and the total nominal amount of cash to be issued under the
Offer will not be varied as a result of Mix and Match Elections.  Accordingly,
Lloyds TSB's ability to satisfy Mix and Match Elections will be dependent upon
the extent to which Abbey National Shareholders make offsetting elections.  To
the extent that elections cannot be satisfied in full, they will be scaled
down on a pro rata basis.  To the extent that elections can be satisfied,
Abbey National Shareholders will receive New Lloyds TSB Shares instead of cash
and vice versa.
 
As a result, Abbey National Shareholders who make Mix and Match Elections will
not necessarily know the exact number of New Lloyds TSB Shares or the amount
of cash they will be entitled to until settlement of the consideration under
the Offer, although an announcement will be made, when the Offer becomes or is
declared unconditional in all respects, of the approximate extent to which Mix
and Match Elections will be satisfied.
 
The Mix and Match Election may be closed without notice or extended by Lloyds
TSB (subject to the Code) on any closing date of the Offer or on or after the
date on which the Offer becomes or is declared unconditional as to
acceptances. If the Mix and Match Election has been closed, Lloyds TSB
reserves the right to reintroduce a mix and match facility, subject to the
Code.
 
The Mix and Match Election will not affect the entitlement of those Abbey
National Shareholders who do not make Mix and Match Elections.

Details of the Mix and Match Election will be set out in the Offer Document.

4. Abbey National Share Schemes

The Offer will extend to any Abbey National Shares unconditionally allotted or
issued upon exercise of options granted under the Abbey National Share Schemes
whilst the Offer remains open for acceptance or such earlier date as Lloyds
TSB, subject to the Code, may decide.  To the extent that such options are not
so exercised, and if the Offer becomes or is declared unconditional in all
respects, Lloyds TSB will make appropriate proposals to option holders under
the Abbey National Share Schemes in due course.

5. Shareholder approval

In view of the size of Abbey National, and in order to effect the Offer, it
will be necessary for Lloyds TSB Shareholders, among other things, to approve
the Offer. Accordingly, appropriate resolutions will be put to an
extraordinary general meeting of Lloyds TSB in due course following
satisfaction or waiver of the pre-conditions set out in appendix I to this
announcement.

6. Disclosure of interests in Abbey National

Save as disclosed below, none of Lloyds TSB, any director of Lloyds TSB nor,
so far as Lloyds TSB is aware, any person acting in concert with Lloyds TSB,
owns, controls, has options to acquire, or holds derivatives referenced to,
any Abbey National Shares or ADSs evidencing Abbey National Shares.  

As at the close of business on 29 January 2001, being the last practicable
date before the publication of this announcement, Sir Brian Pitman (Chairman
of Lloyds TSB), Archibald G. Kane (Director of Lloyds TSB), Lloyds TSB,
Merrill Lynch, J.P. Morgan, and Schroder Salomon Smith Barney were interested
in 2,256, 102, 33,914,427, 142,695, 3,891,713, and 57,061 Abbey National
Shares respectively.

Schroder Salomon Smith Barney also holds 64,728 Abbey National ADSs, which
represents 129,456 shares.

J.P. Morgan also holds the following options:
                                                                                
                                                    
                                                       Cash/
                  Call/  Strike    Expiry   No of      Physical
Classification    Put    Price, £  Date     Contracts  Delivery   Position
Abbey National    Put    12.74     05 Feb 04      1       C      155,708
OTC
Abbey National    Put    11.66     13 Jan 04      1       C      800,986
OTC

7. Regulatory matters
 
On 5 January 2001, Lloyds TSB filed a Merger Notice with the Director General
of Fair Trading.  The period for considering this Notice expires on 23
February 2001.
 
8. Overseas shareholders
 
The availability of the Offer to persons not resident in the UK may be
affected by the laws of the relevant jurisdiction.  Abbey National
Shareholders who are not resident in the UK should inform themselves about,
and observe, any applicable requirements.  Further details in relation to
overseas shareholders will be contained in the Offer Document.

9. Shareholder documentation
 
The formal Offer documentation containing the full terms and conditions of the
Offer, together with summary listing particulars in relation to the New Lloyds
TSB Shares, will be dispatched to Abbey National Shareholders as soon as
practicable following satisfaction or waiver of the pre-conditions set out in
appendix I to this announcement.
 
A circular setting out details of the Lloyds TSB extraordinary general
meeting, together with summary listing particulars in relation to the New
Lloyds TSB Shares, will be dispatched to Lloyds TSB Shareholders as soon as
practicable following satisfaction or waiver of the pre-conditions set out in
appendix I to this announcement.

10. Compulsory acquisition and de-listing of Abbey National Shares

If sufficient acceptances are received and/or sufficient Abbey National Shares
are otherwise acquired, Lloyds TSB intends to apply the provisions of Sections
428 to 430F of the Act to compulsorily acquire any outstanding Abbey National
Shares.

Subject to the Offer becoming or being declared unconditional in all respects,
Lloyds TSB intends to procure the making of an application by Abbey National
for the cancellation of the listing of Abbey National Shares on the London
Stock Exchange.  It is expected that such cancellation will take effect no
earlier than 20 business days after the date on which the Offer becomes or is
declared unconditional in all respects.  In addition, as soon as it is
appropriate and possible to do so, and subject to the Offer becoming or being
declared unconditional in all respects, Lloyds TSB intends to seek to procure
the making of applications to deregister the Abbey National ADSs under the US
Securities Exchange Act of 1934 and terminate the ADR programme in respect of
Abbey National Shares.

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