Abbey National today confirmed that it has agreed to be taken over by a huge Spanish bank as it revealed it had moved back into the black for the first time in two years.

The UK company told the stock market this morning that an agreement had been reached with Banco Santander Central Hispano (BSCH) over the £8.9 billion cash and shares deal.

The proposed deal is likely to mean a big windfall for Abbey shareholders with the company claiming it represented a premium of 17 per cent.

The deal would mean that BSCH shareholders would own around 76 per cent of the new company with Abbey shareholders owning the remaining 24 per cent.

Following the announcement, Abbey chief executive Luqman Arnold also revealed the bank's interim results which had been due to be published on Thursday. They showed pre-tax profits of £350 million for the first six months of the year, compared with a £144 million loss last time around.

Mr Arnold said: "17 months ago the company was facing three areas of serious risk that threatened Abbey's future - these have been addressed and we are now able to focus all of our time and effort on growing the Personal Financial Services (PFS) business.

"We are undertaking a major turnaround of our core PFS business, and we have made excellent progress in rebuilding and revitalising Abbey. We have reversed years of under-investment in Abbey's people, products, service levels and systems while improving efficiency allowing us to keep the cost base flat, and removing pricing eyesores that did not fit with our brand positioning."

Speaking of the proposed takeover deal, Mr Arnold said: "Banco Santander's outstanding retail financial services skills - both marketing and operational - will provide key resources and know-how to accelerate implementation of Abbey's personal financial services strategy whilst simultaneously reducing execution risk.

"Our shared commitment to consumers will bring undoubted benefits to our customers and shareholders."

Directors from the two companies were understood to have spent yesterday afternoon in a meeting discussing the final details of the bid for the UK's sixth largest bank today.

The move would be the largest cross-border retail banking takeover in Europe and create the fourth largest bank on the continent.

However, there is growing speculation that the Spanish bank's move could spark competition from other organisations including huge American bank Citigroup, which is thought to have held abortive talks with Abbey bosses earlier this year.

Union representatives have expressed their concerns about the takeover, fearing what impact it could have on jobs in cities including Bradford, where Abbey employs around 2,300 staff.

It has been speculated the Spanish firm would seek to further cut costs at the bank which is already in the middle of chief executive Luqman Arnold's three-year streamlining operation.

Shares in Abbey closed up 18 per cent at 580p on Friday following confirmation that it was involved in talks.

But the BSCH offer price represents a premium of around 40 per cent on the 420p shares were trading at before takeover rumours boosted their price.

If the deal does go ahead it will create the fourth largest bank in Europe and the eighth largest in the world.

In 2001, Lloyds TSB failed in an £18 billion bid for Abbey after the Government blocked the move on competition concerns.

Abbey has since shed jobs, including more than 70 in Bradford, sold non-core assets and reorganised its operations in a three-year overhaul designed to reverse two years of heavy losses. Part of the process saw the company rename its high street operation "Abbey" as part of a multi-million pound marketing campaign which has received a mixed reception from customers and staff.

Abbey, which was due to reports its interim results on Thursday, has insisted it would show a return to the black in the current financial year after losses hit £686 million in 2003 and £947 million in the year before that.

Around one third of Abbey's shares are owned by retail investors a legacy from its conversion from a building society in 1989.