Abbey National chief executive Luqman Arnold today admitted trading in the first quarter had been hit by the radical overhaul of the struggling banking giant as he prepared to face shareholders.

In a statement to the City today, Mr Arnold revealed that performance across the group had been mixed despite a return to profit after the losses of the past two years.

The announcement was made ahead of Abbey's annual general meeting in London where Mr Arnold was expected to face a grilling over the size of bonus payments to key directors.

The firm, which has its northern headquarters in Bradford, is nearly halfway through a three-year plan to turnaround its fortunes. The controversial strategy has included renaming its high street banking operation 'Abbey', closing centres, shifting some jobs overseas, and focusing on its personal financial services business.

Investors were hoping for positive signs ahead of its interim results in July after making losses of £686 million for 2003 and £947m for 2002.

Mr Arnold said: "We are making good progress and the restructuring efforts remain on schedule 14 months into our three-year plan. It is tough work and is inevitably having some negative impact on current trading.

"We continue to drive the business hard as we push on with our plans. We believe that the huge changes we are making across the entire company will start to have a positive impact from the second half of the year."

But he admitted that, despite the restructuring, the outlook for Abbey's personal financial services trading profit would be "moderately weaker" than expected. A cautious Mr Arnold said he expected to begin to see the results of the changes in the full year's results.

"By the second half of this year, we aim to be materially closer to our goal of having the right people, in the right places, with the right tools to meet the needs of our customers better," he said.

"In addition, the burden of change that our people have been asked to cope with in recent months should be declining, allowing them more time to focus on serving our customers and driving business growth."