Pru call leaves rivals to struggle

JONATHAN Bloomer, chief executive of Prudential, may have stunned the stock market yesterday when out of the blue he unveiled a rights issue to raise £1bn of new capital, but it was a lot less than the jaw-dropping impact it had in his rivals' boardrooms.

Much of Britain's savings industry needs capital and the Pru, by taking the plunge earlier - and therefore more expensively - has grabbed firstmover advantage. The others now have to work out how to respond.

The immediate, understandable reaction to the news, given the troubled recent history of the industry, was that the Pru needed the money to keep the regulator at bay. That is part of it, but only a small one.

The real problem is that growing fast in the savings industry is extremely expensive - the costs come up front and the profits don't flow for years, so the more successful a business is at selling its products, the more capital it absorbs.

This is true of most regular savings, let alone specialist areas such as annuities, where the Pru is particularly strong. Without the capital injection, the company could probably have financed growth of roughly 8% next year. With it, it has the flexibility to hit 14%. That is something its competitors can't ignore. Some of them are going to have to go looking for capital too and some will find it easier than others.

Standard Life got a bond issue worth £400m away yesterday, but that is not going to dispel growing doubts about its ability to generate the profits needed to finance new business and secure its continued independence, let alone win support for the increasingly hollow attractions of a stock market float.

Clerical Medical, part of the HBOS group, should be comfortable with its balance sheet even with its hugely aggressive expansion plans, but Aviva, the Norwich Union parent, is probably kicking itself that Pru got in first. Legal & General should be OK for a while, having got in first in the last cycle, but its annuity business eats regulatory capital too.

The point in all this is that with depolarisation - a change of rules under which a range of savings products can be sold by financial intermediaries - the bulk of financial advisers are likely to focus on a few core products.

The big five names in the industry - mentioned above - have been pulling away from the others for a few years now. But the new rules are going to make brand strength even more important and, before long, the five will probably dominate, rather as the supermarkets do in food.

Whether long term they will stay independent is a question for the future. Some at least would surely already have been tempted into a bank merger, seeking to ape HBOS, were it not that Lloyds TSB's purchase of Scottish Widows showed that success in bancassurance, as the combination is called, is by no means guaranteed.

That time will probably come again before too long. But for now, it is all about grabbing the biggest possible share of a fast-recovering British savings market.

IPO update

ADVFN, the leading European website for private investors, is today launching a company to be called All IPO, the business of which will be using the internet to market new share issues to private clients.

The idea is for the new company to create a website that will allow private investors to see a prospectus, apply for shares, pay for them and have their allocation confirmed all in one seamless electronic transaction.

The platform will be available to any properly authorised firm or its adviser wanting to raise money either as a private placing or as part of a public offering on the Alternative Investment Market or the full market.

Some £1.1m of new money is being sought and, once the funds have been raised, the site will be prepared and Financial Services Authority approval applied for. So it may be six months or so before the platform is fully operational.

Something similar existed in an earlier guise under different ownership in the heady days of the dotcom boom. It proved the concept and was used successfully with the likes of Carphone Warehouse, Orange, and Deutsche Post, plus many smaller issues.

ADVFN, as the major shareholder, will give All IPO access to its database of about 400,000 private clients. This is one of Britain's largest pools of private investors so it is well placed to introduce those with the money to those with the ideas.

Equally to the point, the investment banks and advisers that have ruthlessly excluded private clients from Initial Public Offerings, because they cannot be bothered doing the extra work, will be able to use the platform to reach them at minimal cost.

Let's hope they do it, so private investors can once again get in at the flotation stage of new issues.

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