Prudential takes on the banks

JOHN WILLCOCK

and NICK CICUTTI

Prudential, Britain's largest insurance company, last night sent shock waves through the financial services industry by announcing it was about to move into retail banking.

Its plan to sell savings and mortgages down the telephone is seen as the beginning of a full-service banking operation and is the latest move in a revolution among banks, building societies and insurance companies which has seen nearly pounds 30bn worth of takeovers and acquisitions in the past 18 months.

Analysts praised the Pru's low-cost, high-profile approach, which is aimed at retaining some of the pounds 1bn-odd it pays out on maturing policies each year. Much of this is deposited with banks and building societies, the Pru said.

"It's a logical extension, a nice move," said Tom Bennett, insurance analyst at Paribas. Similar moves by insurers in Scandinavia had forced banks to raise their deposit rates to investors, he noted.

The Pru's pounds 70m investment in a phone banking launch comes hard on the heels of a series of deals in which banks, building societies and insurers have all reacted to a low-inflation, deregulated and highly competitive marketplace.

"The good news is that they're not buying an existing bank or building society. There have been concerns over the years that they might do so," said Nick Bunker, an ABN Amro Hoare Govett analyst.

Prudential's chief executive, Peter Davis, said in a statement: "We enjoy existing relationships with over 6 million customers in the UK and benefit from a well-established and well-regarded brand."

Prudential already arranges around pounds 700m a year in mortgages, using a panel of building societies and banks.

"Given this base, we believe we can build a substantial business in a short period of time," Mr Davis said.

The insurer is well placed to use its financial muscle, making profits of pounds 604m last year.

Prudential said it would apply to the Bank of England for a deposit- taking licence with the aim of offering a direct banking service using the telephone and post.

The recent pounds 15bn Lloyds Bank bid for TSB, following on from Lloyds' pounds 1.8bn acquisition of Cheltenham & Gloucester Building Society, highlighted the threat from the high street banks' expansion into mortgages and insurance.

Both Lloyds and TSB have led the "bancassurance" approach by cross-selling insurance and other products to banking customers. Lloyds TSB will be amongst the UK's biggest insurers as well as mortgage lenders.

The new head of Prudential's banking operation, Michael Harris, spearheaded the introduction of the then-revolutionary First Direct phone banking operation in the late 1980s and hopes to reverse this trend by stealing some of the banks' thunder.

Some analysts warned that big as the Pru is, it may still lack the sheer capital required to make a big dent in the high street banks' market share, not least because of the Bank of England's strict capital adequacy rules.

John De La Hey, an SG Strauss Turnbull analyst, said that in the short term, Prudential's move would be felt more by building societies than banks.

Comment, page 21

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee