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Prudential sets Internet IPO
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February 23, 2000: 4:46 a.m. ET
U.K. life insurer to offer shares in Web bank; 1999 profit slides 38%
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LONDON (CNNfn) - Prudential Plc, Britain's biggest life insurance group, unveiled plans for a public offering of shares in its fast-growing Internet banking arm Egg, at the same time posting a 38 percent drop in 1999 net income as the cost of clearing up a scandal over mis-sold pensions mounted.
Egg, estimated to be worth between 1.5 billion pounds ($2.42 billion) and 4.0 billion pounds, has become the market leader in U.K. Internet banking in little more than a year. Prudential expects Egg's customer base of more than 800,000 to rise to million customers by next month. The widely expected offering of a minority stake in Egg would take place later this year, subject to "continuing progress in the business and favorable market conditions", said Prudential. It said it has not yet decided the size of the float.
Prudential said that Egg appealed to a new type of computer-literate customer. In January, 62 percent of all Egg's deposit transactions took place over the Internet and 90 percent of mortgage applications were via the Internet. Egg had deposit funds of 7.6 billion pounds by the year-end, said Prudential.
Egg's success in grabbing customers has prompted a rush by British banks to set up rival Internet banks. Abbey National and Halifax unveiled stand-alone online banks last week.
Prudential said it expected Egg to break even in the latter part of 2001. The loss at Egg and Prudential banking doubled to 150 million pounds in 1999, and the company said it expects to invest a similar amount in Egg this year.
Prudential said its overall net income for 1999 fell to 542 million pounds, or 27.8 pence a share, from 880 million, or 45.2 pence, a year earlier, depressed by the rising cost of clearing up a scandal over the mis-selling of pensions that came to light in the early 1990s.
Costs including compensation payments and the administration of its review of pension sales amounted to 100 million pounds, while the company set aside another 600 million for future expenses. It estimated that the entire cost of the process would eventual come to 2 billion pounds.
Prudential said its underlying operating profit, excluding amortization of goodwill, investment in Egg and other costs, was 996 million pounds, up six percent. Prudential saw an inflow of more than 18 billion pounds of new funds in 1999.
While the company said it saw the greatest potential for future growth outside Britain, it expects more consolidation in the U.K. insurance market, after rivals CGU and Norwich Union this week announced merger plans.
Prudential's shares edged up 1.7 percent to 948 pence. The company said it would raise the annual dividend 9.5 percent to 23 pence per share. 
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