Abbey National's chief executive Ian Harley stepped down today after paying the price for a profits warning last month.

Mr Harley, who has been with the company for 25 years, took the helm in March 1998 but has been beset with problems in recent months.

The company said Mr Harley had left by mutual consent and chairman Lord Burns would take on executive duties until a successor was found.

Lord Burns said in a statement Mr Harley had made a tremendous contribution. Mr Harley's departure comes as speculation mounts Abbey could soon be subject to a takeover bid from the National Australia Bank (NAB).

Abbey surprised the City last month by warning full-year profits would be hit by higher bad debt provisions in a key division.

It said annual pre-tax profits would fall substantially short of expectations after being hit by the cost of writing off debts at its corporate-based wholesale banking arm.

Pre-tax profits this year would be down on the £1.9 billion expected by the market and recorded last year.

The wholesale division was also largely at fault for a two per cent fall in group profits last year.

In recent months, Mr Harley has sought to limit the arm's exposure to high-risk lending and has overseen an overhaul of the division.

He told investors he hoped the bank's more cautious approach would start to show through in the second half of this year.

The scale of Abbey's problems should become clearer when the company issues interim results next Wednesday. It said today its financial position had not changed since the profits alert last month.

Shares got off to a strong start today, rising more than two per cent in a depressed market, as investors reacted to the news.

Abbey has been seen as a takeover target after its share price fell from a high this year of £11.32 to 697p last night.

NAB is thought to be in the early stages of putting together a bid.