Abbey is in a major restructuring of its business

But the UK's second biggest mortgage bank sees hopes for "substantial recovery" in the group's results for 2004, and a cut in its losses.

Investors were unimpressed however and Abbey shares slumped 12%, or 65 pence, to 485 pence.

It was forced to shake up its business after a foray into corporate banking led to a �984m annual loss for 2002.

The bank, rebranded as Abbey, started a three-year overhaul of its operations last year and has announced job cuts.

'Encouraging signs'

In January it announced 400 jobs being lost in England, a relocation of many Scottish workers, and outsourcing of other work to India.

The trading results reported today are resilient and encouraging for the future Luqman Arnold, Abbey chief executive See Abbey's latest share price

Chief executive Luqman Arnold said the turnaround strategy launched by Abbey last year remained on track with a "substantial recovery" in results expected for this financial year.

Mr Arnold continued by saying it had been "a tough year" but that progress had been made, particularly in reducing risk levels.

"Given the upheaval the business has had to cope with, the trading results reported today are resilient and encouraging for the future."

The latest losses were bigger than market expectations, and the firm has sold off risky assets at losses to go back to consumer banking.

The bank reduced assets at its portfolio business unit, home to unwanted loans and businesses, by 80% to �12.3bn.

Trading profit at the bank's core personal financial services unit fell 16% to �1.02bn, below a consensus of �1.09bn.