Are Pru and Halifax the perfect pair?

The merging of banks and insurers will only work if there is value to the customer, writes Nic Cicutti

"LIKE TWO drunks propping each other up" was the way one City analyst described the recent merger talks between Prudential and Halifax.

In truth, the convoluted on-off minuet between Halifax and the Pru is not the only dance in town. The long-predicted consolidation of the financial services industry is gathering pace: high-street banks and insurers are holding exploratory talks.

It is as yet unclear who will be paired with whom when the music stops. But what I believe is that the coming mergers and takeovers will not help profits in the long run unless they are accompanied by a genuine delivery of better value to the consumer. Indeed, if this is not seen as the sine qua non of any link-up, the City would be wise to give the combination the thumbs down.

Take the Pru and Halifax. When it was reported that talks between the two companies were at an embryonic stage, the mood among analysts about a prospective merger between these two financial services giants was lukewarm.

"My preferred deal would have been between Halifax and a big bank," was the main reaction. The logic behind such a comment was that by merging two large retail banking institutions, the potential synergies involved (for synergy, read branch closures and staff redundancies) would have meant substantial cost savings to the unified bank.

Meanwhile, instead of merging with Halifax, the City would like the Pru to participate in the consolidation of the financial services industry by "mopping up" in areas of insurance where it is still under-represented, perhaps by taking over a general insurer, or developing its latest telephone and internet banking project, egg, further.

Bringing together the UK's largest insurer and largest former building society does not appeal to the City because there are few synergies. The news that the Pru and Halifax were in merger talks lifted the share price of the two companies. But this was probably because breaking news about mergers almost always lifts share prices as a first reaction.

So where do matters between Halifax and the Pru stand now? Whether it likes it or not - and it probably does like it - Halifax is almost definitely in play. A year from now it almost definitely will no longer exist in its present form. The Pru may be in play too, although this is less certain. In the face of these facts, the job of Halifax's management is obviously to generate a bidding war for the demutualised mortgage lender. The job of the Pru's management is to stay in the game or bow out and look for a different kind of link - or defend itself against any combination at all.

But there is a more radical route the two firms could take: they could go for a merger, but not on grounds the City conventionally recognises. The Halifax is a mortgage lender operating in a mature market subject to a slowdown. Following its demutualisation last year, the former building society lost a large chunk of its borrowers and savers to a combination of supermarket banks and un-demutualised mortgage lenders. To stop the erosion in sales, the Halifax slashed lending rates. But this is expensive. The most profitable slice of business is the one you already have, not the one you have slashed your margins to attract.

As for the Pru, its prospects look so-so. They are tarnished by the apparent inability of its sales force to deliver quality - either to customers or their bosses. Egg may be the long-term future of financial services. But its launch has come with hiccups. The payback will be a long time coming.

Halifax and the Pru are both under strain, in other words. They should go for a merger. But they should not go to the City talking about the cost savings that would result.

Instead, the they could go to the City declaring they were going to realise the dream of cross-selling a supermarket basket of financial services to customers They could cut prices and increase the transparency of selected products now. On the basis of the increased sales that resulted, they could say they planned to do do the same for their full, combined range of mortgages, loans, bank accounts and insurance policies.

Ask yourself what would happen if Halifax were to tell its 2.4 million borrowers that it was moving them on to monthly interest calculations instead of the annual calculations, thereby allowing customers to save thousands of pounds in interest?

What if the Pru were to take a similar dramatic step? What if the two institutions then told the City they were merging so they could offer customers further savings?

The City's love of "synergies" might be taken over by a new love - the idea of increasing profits by providing value to the millions of customers with appetites for cheap, transparent personal financial services.

And as for the "two drunks propping each other up"? Sobering up is painful, but it's a great way to make a fresh start.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible