City watchdog slaps £30m fine on Prudential

The Financial Services Authority has fined Prudential £30m over the way it handled its failed bid for rival insurer AIA.

by Michael Northcott
Last Updated: 19 Aug 2013

Perhaps wanting to go out with a bang rather than a whimper, the soon-to-be disbanded FSA has levied a string of fines on the financial services sector recently. In it’s latest snarl, it has now got shirty with Prudential over the $35.5bn bid to buy rival insurer AIA back in 2010. The FSA says that Prudential did not ‘deal with the [the regulator] in an open and cooperative manner’, and has censured the firm’s chief executive, Tidjane Thiam.

The regulator says that Pru was less than punctual in informing it of the intention to take over the AIA. In fact, apparently the FSA did not know anything about the bid until it was leaked to newspapers in late February that year. Making matters worse, just two weeks prior to this, the FSA had specifically questioned Pru on its plans for the Asian market, and about any plans for a new share issue to raise cash.

But Pru was late in notifying the FSA of its designs, and because the deal was a particularly large one, the FSA claims, it was possible that it could actually have made waves and affected stability throughout the financial system as a whole. 

So what made the deal fail? Essentially, Pru shareholders objected to the first tabled acquisition proposal on the grounds that it was too high a premium for the target company, but then AIA’s parent company, the US insurer AIG would not accept a lower offer. The difficulty now is that Pru has had to soak up costs of £377m thanks to the attempted buyout, but nonetheless, shares have risen 35% in the last year thanks to a strong performance in the Asian market and a 16% increase in its 2012 dividend.

Still, the firm has to face the music with its regulator. Director of enforcement and financial crime for the watchdog said: ‘That was a serious error of judgement for which Prudential is paying the price. This case should send a clear message to all board members of their collective and individual responsibility for the decisions they make on behalf of their companies.’

At the time of the deal, Thiam was relatively new in the job and a combination of inexperience and over-confidence resulted in his failure to get the deal through. He seems to have learnt his lesson and is doing a good job now, however.

All things considered, £30m is a snip compared with the larger loss, and with the share price performing well and no heads rolling, we reckon the folks at Pru aren’t all that bothered. So for the time being, it looks like Thiam is safely ensconced as ‘the man from the Pru’.

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