As part of the deal, Abbey will issue ordinary shares to Santander in exchange for the parent group’s shares held in A&L.
It is expected this swap will take place on or around January 9 2009.
Abbey has also injected £950m in capital into A&L today partly through a subscription of 234,113,712 A&L ordinary shares for cash at £2.99 per ordinary share.
The remaining capital came via a further $220m and €115m in undated subordinated notes issued by A&L.
The move means that Abbey now holds 35.6% of the issued share capital of A&L.
This latest capital injection recycles capital injected into Abbey by Santander on October 12.