Abbey National has refused to rule out the possibility of job losses if a merger goes ahead.

The troubled firm, which just days ago reported a massive 34 per cent slump in profits, is rumoured to be a target for the National Australia Bank.

Abbey, whose chief executive recently quit after a shock profit warning, employs around 1,800 people at its regional head office in Bradford.

Last year the former building society was targeted in a £20 billion bid by Lloyd TSB, but plans were halted by the government when watchdogs said the deal would be anti-competitive.

Industry insiders believe National Australia Bank, which owns Leeds-based Yorkshire Bank, and Bank of Ireland are both interested in Abbey.

Last week Abbey finance director Stephen Hester admitted the bank was open to a merger. He said: "We are working extremely hard to do all the things we can do to improve shareholder value.

"At the same time, if anyone were to approach us with something that looked great to our shareholders, we would be the first people to want to put it to them if we thought it offered a better deal. We're not in any way closed minded about it."

Last year, finance union UNIFI spoke out against the merger between Lloyds TSB and Abbey.

If the merger had been given the green light job losses would have reached around 9,000 because of the close proximity of Abbey and Lloyds branches across the UK.

Dai Davies, director of communication for UNIFI, said: "If a merger goes ahead between NAB and Abbey there would undoubtedly be job losses, though we wouldn't expect the same carnage as the proposed Lloyd Abbey merger as there is not such a significant overlap.

"If NAB tables an offer it will be because it is looking for increased networking in England and Wales, listing on the Stock Exchange and UK growth. Lloyds purely wanted to strip a competitor."

Abbey, which is Britain's second biggest mortgage lender, saw pre-tax profits for the six months to June slump 34 per cent at £697 million.

The crisis-hit bank blamed the fall on £208 million worth of bad debt provisions linked to investments at its corporate-based wholesale arm.

Abbey chief executive Ian Harley, who had been with the company for 25 years, took the helm in March 1998.

His departure has fuelled speculation that Abbey could be subject to a takeover or merger bid. Mr Harley even described the bank as a "sitting duck".

Australian stock market quoted NAB has not kept it a secret that it is looking to expand its UK operations. NAB, which has already been linked with the Alliance and Leicester and Bradford and Bingley, is thought to be in the early stages of putting together a package for Britain's sixth largest bank.

A spokesman for Abbey said: "We cannot comment on any speculation at the moment but we cannot rule out the possibility of a merger bid."

l Bradford & Bingley and Barclays are believed to have reached an agreement over merger talks.

Any deal will need to have the full agreement of Bradford & Bingley's board as it is protected from hostile bids until 2004.

Barclays, which is Britain's fourth largest bank, wants the merger to go ahead so it can increase its share of the mortgage market.