Abbey National's new chief executive looks set to slash the company's dividend in a bid to turn the bank's fortunes around.

Luqman Arnold, who was appointed last month, is expected to announce cuts of up to 40 per cent tomorrow.

He is also expected to lower the value of assets in Abbey's troubled wholesale banking arm.

Abbey could save up to £290 million by cutting its dividend by 40 per cent.

It is thought it could pump part of these savings into assurance company Scottish Mutual - which it has already ploughed more than £525 million into in the last 12 months to keep it afloat.

Abbey, which employs around 1,800 people at its regional headquarters in Bradford, is expected to make the cuts in tomorrow's trading statement to the City to help battle against predicted full year losses of £1.5 billion.

The troubled firm has seen its performance fall with a series of profit warnings and the loss of its former chief executive Ian Harley in June.

Problems at Abbey's wholesale banking arm, which provides loans to corporate clients, have added to the financial giant being seen as a takeover target.

Abbey recently rejected a £10 billion merger approach from the Bank of Ireland.

Analysts say a dividend cut could see shareholders receiving a total pay-out this year of 30p per share, compared to last year's 50p per share.

The firm declined to comment on the rumours ahead of the statement.