Prudential aims to fend off calls for change with robust interim results

Published on Sunday 8 August 2010 11:28

PRUDENTIAL will outstrip City forecasts this week when it reports robust interim results that it hopes will defuse calls for a boardroom clear-out following the failed £24 billion bid for AIG's Asian operations.

Harvey McGrath, chairman of the insurance giant, will say that the group learned its lessons from the abortive takeover earlier this year that led to estimated write-offs of 450 million.

The takeover was the brainchild of new chief executive Tidjane Thiam, but the Pru was particularly criticised for "woeful" communications on the strategy and perceived top-dollar price for the assets of AIA.

One source said: "There will be nothing new on the management issue. No change is planned. Any shareholder who wanted a meeting with the Pru to discuss such matters has had it. But the good news is that the results will be very strong."

Analysts expect operating profits at the group to have risen at least 4 per cent in the first half of 2010 to 714m, as the dividend is hiked 5 per cent to further appease disgruntled shareholders.

Some observers expect Prudential's profits to come in substantially above even the highest City estimates of 760m, which would be seen as further consolidating the positions of both Thiam and McGrath.

The company is expected to hold further meetings with institutional investors in the wake of Thursday's announcement in an effort to mend fences following the collapse of the AIA deal. However, some believe even a top-end performance by Pru will not be enough on its own to repair the damage the company has suffered from the affair, predicting that McGrath or, less likely, Thiam, will quit by the end of the year.

Prudential's star turn in its results is likely to have been Asia, where the company became strongly established in its own right under Thiam's predecessor, Mark Tucker. Thiam is likely to stress that the region remains at the core of the group's strategy, with or without AIA.

Reports in Asia suggest the Pru is looking at taking a stake in Pacific & Orient, the Malaysian general insurer. It is thought the group will also be questioned at its results this Thursday about a possible demerger of M&G, its asset management business. M&G's chief executive, Michael McLintock, has been touted as a possible successor to Thiam.

Some believe the City mood towards Prudential will not be improved if the cost of the failed bid rises to 500m, as has been speculated recently.

Robin Geffen, managing director of Neptune Investment Management, a Pru shareholder, has campaigned for boardroom change in the wake of the "arrogant" AIA bid process.

It was reported at the weekend that he was particularly interested in seeing the loss from the currency hedge the company controversially took out ahead of getting shareholder backing for the bid.

One analyst said: "Nobody is saying Thiam cannot run a company operationally. He is good at it and these results are likely to be evidence of it.

"It will definitely buy him some time at the least, but it is a moot point whether the City will trust him strategically again. That's the issue, which these results will not totally address."

Despite this, many investors believe McGrath is now the more vulnerable of the two men, given that it was the judgement and handling of the bid for AIA by the board which he runs that has been repeatedly called into question.