Letter boxes have had to be widened and doormats reinforced to cope with Abbey National's takeover offer document.

The 399 page tome must set a record as the bulkiest set of papers shareholders are ever likely to have seen. Most shareholders will be counting their blessings that their shares are held in a broker's nominee, and have been spared the bother of digesting all the information.

One shock to shareholders who have not already sold their shares in the market, is the prospect of having to file Spanish tax returns. This will be the case if they want to sell Santander shares after the bank completes its takeover. To be fair to Abbey, a spokesman has gone on record stating that the bank was making efforts to simplify the Spanish tax form, including pre-completed forms for those wanting to sell when the deal completes.

Another concern has been that UK investors will have to pay a 15 per cent withholding tax on Santander dividends, and Spanish inheritance tax of up to 35 per cent if they have Spanish assets of more than £15,956.

All this hassle comes with a carrot of 31p cash per share, on top of the share exchange of Santander shares for Abbey National shares. Is the hassle worth it when Abbey shares are currently trading at a 20p premium to the Santander share price and can be readily sold in the market.

The risk in holding on to Santander shares is also clearly connected to its ability to turn the fortunes of Abbey National around. This is most definitely questionable. Also, will Santander be able to cope with the stock overhang that will occur if most shareholders sell, putting downward pressure on the Santander share price.

The cost to Abbey of printing and posting the heavy documents was £9m. The cost to Abbey of assisting shareholders who, by default, may end up with Spanish shares, has yet to be quantified.

In the meantime, the stock market has made good progress, despite the FTSE dropping below the 4550 support level at one stage. By charting the FTSE 100 graph, it would indicate a determined push above 4600.

Shares may not have offered quite the excitement this year that they offered last year, but in the UK, the total return has exceeded that of sterling cash, conventional gilts and index-linked stocks. UK equities are also outperforming most other major equity markets, after adjusting for exchange rate gains or losses. So far this year, the total return on the FTSE All Share Index is a positive six per cent. The US S&P 500 has returned only one per cent. For Japan and the euro zone, the corresponding returns are 1.4 per cent and 3.5 per cent respectively. Emerging markets are this year's top performers but, when adjusted for sterling, the return is a mere 25 basis points ahead of the return on UK equities.

So why the comparatively good performance, when institutional investors are still selling UK equities? Firstly, the prevailing view is that interest rates are nearing their peak, which means their restraining influence has been progressively fading. Secondly, the recent bid by Santander for Abbey helped liven up the banks, which have been performing poorly. It also fuelled more talk of takeover in the banking sector, the largest sector in the market.

For investment advice contact Anthony Platts on 01642 608855.

Published: 05/10/2004