Pru drops plan to buy UK bank

THE PRUDENTIAL, Britain's largest life insurance company, has given up its ambition to acquire a UK mortgage bank following the runaway success of Egg, its new banking business.

Deposits taken since last year's launch have topped pounds 3bn, with more than 250,000 accounts opened so far.

Sir Peter Davis, the Pru's chief executive, said yesterday that, with the response running ahead of expectations, the start-up costs in 1999 will be a third higher than forecast at pounds 100m, although the group is sticking to its pledge that Egg should be in the black by 2001.

Profits for the year just gone were up 3 per cent to pounds 860m after including a pounds 77m hit for Egg last year.

Sir Peter was also enthusiastic about the take-up of Egg's Internet arm, reflecting the young dynamic client base it is building.

"Are we buying customers? Of course we are. But the cost per customer is cheaper than it would be if we acquired a UK mortgage bank. If we went out and bought, say, the Alliance & Leicester, we would have to pay out pounds 150m a year. That is on top of the pounds 5bn it would cost," he said. "We are quite serious in what we are doing."

At the current rate of growth, Egg is set to overtake both the Woolwich and Alliance & Leicester although rivals say they expect growth to slow once the volume target is reached and the rates offered to customers start to fall to more sustainable levels.

The Pru has also ruled out any further acquisitions in the life insurance (independent financial adviser) sector. But Sir Peter said that he was still on the look-out for deals to strengthen the business elsewhere in the UK, Europe and Asia.

The group, which has pounds 400m of cash in the bank, could return the money to shareholders but had yet to decide on a buyback.

Analysts were also cheered by signs of recovery in the mainstream UK business after the bad publicity over pensions mis-selling followed by the restructuring which led to 1,000 of the group's 4,000 workforce leaving the firm. UK operating profits excluding Egg were up 7 per cent at pounds 475m.

The group is in the process of negotiating a new pay package with its UK salesforce, which links rewards to the quality of business and standards of customer service rather than to sales volume alone.