Egg shares rise despite news of problems at its French operation

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The Independent Online

Shares in Egg, Prudential's internet bank offshoot, jumped 9p to 133.5p yesterday despite news of a £22.8m half-year loss and continuing problems at its fledgling French operation.

The loss compares with £1.2m profit a year ago, because the French losses jumped from £5.5m to £48.7m. Egg's chief executive, Paul Gratton, said: "Sales volumes have been slower than expected and we continue to monitor progress closely, but we still think there is a viable business in France."

He refused to say whether the monitoring process might involve the sale of Prudential's 79 per cent stake in Egg, for which Royal Bank of Scotland has been a rumoured buyer. Egg shares were floated on the stock market at 160p in June 2000.

Mr Gratton suggested that Egg shares had risen because yesterday's statement had shown the stock market that "our UK business is doing very well indeed and we are controlling costs in France."

When Egg went into France last October it said that it was aiming at a million customers by end-2004, a target it has had to abandon. It still has only 115,000 customers, sharing 42,000 cards. Mr Gratton added: "Encouragingly, behavioural data shows these customers continue to have a high usage rate, indicating that 'la Carte Egg' is their primary card and, importantly, the percentage of balances revolving has risen from 41 per cent during the first three months of the year to 70 per cent in June.

"Card balances are now €68m (£48m), up from €34m at the end of the first quarter."

However, Egg's UK business is growing strongly, attracting another 340,000 customers in the first half-year, making a total of 2.9 million and helping towards a profit before tax of £36.7m. Part of the reason for that was an increase of £521m to £2.6bn of borrowings by Egg Cardholders. And, despite the Bank of England base rate falling by 0.25 per cent in February, the average rate charged on Egg Cards rose from 8.99 per cent to 9.81 per cent compared with the first half of 2002.

Mr Gratton claimed: "We have seen no deterioration in the credit quality of our retail asset portfolio, which remains well above industry average for credit cards."

He said that the average interest rate had risen because there was a smaller proportion of borrowers paying 0 per cent on balance transfers, pushing the average up.

Unsecured lending balances increased by over £650m, up 86 per cent. Personal loans grew by a net £340m, five times as fast as a year ago.

But competitive pressures are forcing Egg to step back in its savings business. The number of depositors fell by 15,000 and they took £230m with them. Mr Gratton explained that this was because marketing spend on this area had fallen, and because of a need to balance the books.

Total group assets rose by £1.5bn to £11.2bn. As usual, there is no dividend.