Abbey said on Friday that Mr Harley was stepping down "with immediate effect".

Things have not been great at Abbey. It was clear that something had to give

James Leal, Gerrard

The bank said it had begun a search for a successor to Mr Harley, 52, who had been with the firm for 25 years.

Company chairman Lord Burns will take over chief executive duties in the interim.

The resignation comes a month after Abbey, the UK's second ranking mortgage lender, warned over profits.

And it was well received in the City, where Abbey shares rose by more than 3% before succumbing to the general stock market gloom and closing down 2p at 695p.

"Things have not been great at Abbey in the last year," said James Leal, analyst at fund manager Gerrard.

"It was clear that something had to give."

Missed profits

Last month, the company said it would miss its profits targets because of bad loans in its wholesale banking division, a warning which sent Abbey stock spiralling to a two-year low.

Lord Burns: Growth priority

Two leading executives left the company's wholesale banking division earlier this week.

There has been speculation that Abbey's low share price makes it an attractive takeover target, with National Australia Bank cited as a possible buyer.

But bids from other UK banks are thought likely to run into objections from anti-trust regulators after the government blocked a hostile takeover attempt by Lloyds TSB last year.

"It's a classic bid scenario, but they effectively have government protection as Britain wants to raise competition in the sector," said SG Securities analyst Richard Staite.

A planned merger between Abbey and Bank of Scotland also fell through last year.

Recovery plan

Lord Burns said the bank aimed to shore up its shaky finances and improve returns to investors in the months ahead.

"Our priority now is to get the business back on track for growth and ensure we increase shareholder value," he said.

"We have already put many of the building blocks in place to improve the business... and will be relentless in pursuing our goals."

Abbey National is mid-way through an overhaul of its wholesale banking and wealth management divisions.

The company is due to provide investors with an update of its performance on 24 July.