British banking group Abbey National has unveiled a steep slump in profits, days after the shock resignation of its chief executive Ian Harley.

There are still tough challenges to overcome, but we are tackling these head on

Abbey National chief executive Lord Burns

The bank said pre-tax profits for the six months to late June came in at £697m ($975.8m) , 34% down on the same period last year.

Investors reacted cautiously to the figure, which was in line with Abbey's own lowered forecasts, and in the middle of the range predicted by analysts.

Abbey shares initially climbed 17 pence to 674p, but erased their gains to close 19p lower at 638p.

The bank said losses on asset disposals and bad loans had dented its bottom line.

Last week, Abbey's former chief executive Ian Harley resigned following strong criticism over the bank's faltering stock price.

Abbey shares, which fell steeply after the bank issued a shock profits warning last month, are down by about a third since the beginning of the year.

Overhaul

There has been speculation that the company's weak share price has made it vulnerable to a takeover bid, with National Australia Bank cited as a likely buyer.

Abbey National acting chief executive Lord Burns said the bank would re-focus on the UK retail financial services market in a bid to improve returns to investors, and also pledged to cut costs.

"There are still tough challenges to overcome, but we are tackling these head on," he said.

The bank, whose core business is UK mortgage lending, has come under fire for venturing into high-risk US corporate loans.

The bank lent money to troubled US corporations including bankrupt energy giant Enron and ailing industrial conglomerate Tyco.