INSURANCE giant Prudential saw its shares dive 18% yesterday after it prepared the City for its firs...
INSURANCE giant Prudential saw its shares dive 18% yesterday after it prepared the City for its first dividend cut since 1914 by saying it has to rethink its policy on the payout, says the Telegraph.
The warning came as the Pru announced a 6% increase in pre-tax losses to £483m after £1.9 billion of investment losses and writedowns.
Prudential is digging into its reserves to pay a final dividend of 17.1p for 2002, lifting the total 2.4% to 26p. However, analysts now believe it could act later this year to halve its £500m annual dividend bill.
WITH the news of Pru's plummeting share price, the Times reports on the insurers' shrinking market capitalisation, which has fallen 70% in two years to just £6.5 billion by last night's close, sparking speculation that the insurance giant could be a prime take-over target for banks hoping to build up their life assurance businesses.
In the past the Prudential had held merger talks with NatWest, which subsequently fell to Royal Bank of Scotland; with Halifax, which instead agreed a deal with Bank of Scotland; and Barclays, which went on to seal a distribution deal with Legal & General.
The problems facing David Clementi, the Prudential's new chairman, may put such a "bancassurance" deal firmly back on the agenda. At present the company, under the stewardship of Jonathan Bloomer, the chief executive, distributes its products through independent financial advisers.
Finding new customers to distribute products to could help Prudential to recover some of the ground it has lost in recent years to competitors such as Aviva and Legal & General.
BUT banks looking to buy into life insurers should take heed of HBOS' need to pump £500 million into its life assurance arm, Clerical Medical, at the start of this year – news which was revealed yesterday, reports the Scotsman.
HBOS followed Clerical's main funds collapsing by more than £400 million last year, amid tumbling stock markets, sending its key free asset ratio - a measure of financial strength - sliding from 11.5 to 7.1%.
However, chief executive James Crosby, announcing a 22% rise in group pre-tax profits to £3.06 billion in 2002 (£2.51 billion previously), said the capital injection to Clerical should reassure customers that HBOS had the strength to weather short-term volatility.
A final dividend of 19.6p makes a total for the year of 29.4p – 5% up on 2001. HBOS shares jumped 5%, or 31.5p, to 621p.
ABBEY NATIONAL, the UK's sixth largest bank, on Wednesday slashed its full-year dividend and reported losses of £984m ($1.55bn) in 2002 - one of the biggest losses in UK banking history, leads the FT.
The bank reported that profits made by its retail bank were wiped out by a raft of huge charges including provisions of £902m at its embattled wholesale bank which made a series of disastrous investments in corporate bonds.
Abbey also took a goodwill write-down of £1.13bn on past acquisitions including First National as well as a £632m one-off charge as it changed the way it accounted for embedded value at its life assurance arm.
Abbey, which has issued a series of profits warnings in the past year and rebuffed a bid approach from Bank of Ireland, is the first UK bank to cut its dividend since Barclays lost millions on property investments in 1993.
ROYAL & SUNALLIANCE plans to raise up to £600m from the flotation of its Australian and New Zealand insurance business, beginning the process of asset sales it has been forced into to meet a capital shortfall, according to the Telegraph this morning.
Royal & Sun Alliance Australasia is scheduled to be floated on the Australian stock market in early May, with the UK insurer selling its entire holding. It will be the biggest initial public offering in Australia for more than 12 months, but is expected to be well received given the relative strength of the insurance market there.
The asset sale will bring desperately needed cash to Royal, which admitted its capital position was £600m short of company targets last November. Royal's shares dropped 9.3% to 71p yesterday after credit ratings agency Fitch downgraded both Royal and its US subsidiaries by one notch, from A- to BBB-plus.
£300bn of liabilities
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