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

News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
i100
Life and Style
fashion Designs are part of feminist art project by a British student
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
PROMOTED VIDEO
News
i100
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
tv
Sport
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
News
Lane Del Rey performing on the Pyramid Stage at Glastonbury 2014
people... but none of them helped me get a record deal, insists Lana Del Rey
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Business Analyst - Banking - Scotland - £380-£480

£380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn