Prudential gets shot of pedestrian UK business through long awaited demerger

The new Pru says it’s staying put in London, but for how long?

Prudential: breaking up after 170 years (Bloomberg)

Is Prudential voting with its feet?

The venerable insurer has decided to carve out its UK business from the rest of the group, which is focussed on Asia, America and Africa.

The fast growing economies in those regions are the fuel that will drive a £40bn business that will soon be trading under the name Prudential PLC.

Another outfit, worth about £10bn and bearing the name M&G Prudential, will hold the rump UK operations. Shareholders will get paper in both after the deed is done.

It isn’t all that hard to guess which set will be more highly rated and sought after by the market.

In truth something like this has been on the cards for some time. Analysts have long questioned whether the racy exciting bits of the business, operating in relatively lightly regulated markets, wouldn’t be better off being given their heads as opposed to being shackled to a UK business that cramps their style.

People here worry a lot about things like solvency and keeping capital to hand should things get shaky, as has happened before. The European rules on that sort of thing are tough. The UK rules are likely to remain so even after its sulky departure from the bloc.

Elsewhere they take a more relaxed view. Only time will tell if they’re wise to, but the new Pru PLC will be able to take advantage while still staying in London through dickering with its corporate structure.

To give M&G Prudential a bit more flexibility when it’s a standalone UK business, and to allow it to operate with less of that capital, a big annuity book has been sold off.

It’ll need a new board, and John Foley, who currently leads the business, will get to be a FTSE 100 CEO when the demerger has been done. That ought to be nice for his bank balance even if the real action is being kept by Mike Wells, Pru’s current generalissimo who gets Prudential PLC to play with.

Does he still believe in Britain? Of course! We’re staying in London aren’t we? There are lots of good things here. This is just about giving investors a choice of two lovely businesses in which to invest. And isn’t that a good thing? Choice?

London has a deep pool of capital, it’s true, and lots of the sort of expertise giant supertanker companies like to have on call. So there’s a certain logic to keeping the HQ of Pru PLC in a time zone that sits in the middle of Asia and the US.

But would anyone be all that surprised to see this business heading to Hong Kong in its near future? Would anyone really blame it?