Citigroup, the world's largest financial services organisation, launched a new assault on the UK retail banking market yesterday, buying the internet bank Egg from Prudential for just £575m, a year after the insurer took full control of the business.
The sale price is almost £400m less than the value of the bank at the time Prudential bought out the minority shareholding last year, and brings an end to an embarrassing chapter in the insurance giant's history.
Jonathan Bloomer, the former chief executive of Prudential, first put the insurer's 79 per cent stake in the business up for sale three years ago, knocking back a handful of preliminary offers before withdrawing the bank from the market. His indecisiveness over the future of Egg became one of the factors which contributed to him being ousted from the company in 2005.
The new chief executive Mark Tucker decided to eliminate any confusion by buying out the remaining 21 per cent in Egg at the start of last year. He claimed then that the bank offered a number of potential cross-selling opportunities, which could help speed up Prudential's growth in the UK. Months later, the insurer was forced to admit that Egg had slumped back into the red, due to rising levels of bad debts.
Mr Tucker conceded yesterday that the timing of the sale had been driven in part by the continuing deterioration in the UK consumer credit market.
He added that the attraction of a handful of distribution agreements with Citigroup, including a deal to distribute Prudential products in the UK for the next five years, was also a significant factor.
However, he denied that the sale represented an embarrassing reversal in the group's UK strategy. "I'm still a believer in the multi-brand strategy, but I'm also a believer in optimising shareholder value, which is what I'm here to do," he said.
He added that he had no regrets in buying the remaining 21 per cent stake in Egg, claiming that owning the entire business was what had made the sale possible.
The transaction will see Prudential book a loss of some £255m, reflecting the higher value placed on the business at the time it bought out the minority 21 per cent stake. However, the overall group balance sheet will record a profit of £275m. The group plans to use the proceeds to pay down its debt and to enhance its earnings per share.
The deal will quadruple Citigroup's presence in the UK retail banking market, making it the eighth largest credit card provider. A spokesman said the company intends to keep the Egg brand, but said it was too early to confirm any other plans.
Citigroup has been trying to grow its retail banking proposition in the UK, offering free gifts such as ipods for new customers. Yesterday's deal now leaves it with 4 million customers.
Prudential brought forward the publication of its fourth-quarter sales numbers yesterday, which were slightly ahead of analyst forecasts. Strong sales in the US, Asia and UK retail life and pensions markets were offset by a sharp fall in bulk purchase annuity sales. Mr Tucker said the group had chosen not to write much business in the market due to an increase in competition. His former Prudential colleagues Mark Wood and Isobel Hudson have both set up competing businesses.
Mr Tucker said the company had already decided on a new strategy for the UK life and pensions business, but would not be communicating it to the market until the group's preliminary results on 15 March.Reuse content