Prudential Posts Loss For 2008, CEO Steps Down
By ROBERT BARR
March 19, 2009
Prudential PLC on Thursday announced that its chief executive was stepping down as the company fell to a loss of 396 million pounds ($566 million) for 2008, mainly due to writedowns on the value of assets in the United States.
Mark Tucker, who has led the company for 4 1/2 years, will be replaced by the chief financial officer, Tidjane Thiam, Prudential said. It did not comment on the reason for Tucker's decision.
"I believe that I have delivered on what I set out to do and that the time is now right to hand over to a successor to continue the work," said Tucker, a veteran of 25 years at the company.
The full year deficit by the insurance and financial services company compared to a profit of 947 million pounds in 2007. The company said this was due mainly to short-term fluctuations in financial markets, particularly in the U.S., where it booked 624 million pounds in impairment charges and defaults at a U.S. unit.
Overall losses in the U.S. swelled to 1.06 billion pounds compared with 18 million pounds in 2007.
Excluding such writedowns, Prudential boasted of a 12 percent increase in operating profit to 1.3 billion pounds, led by a 70 percent jump in operating profit in Asia.
Shares in the company rose 6.9 percent to 269 pence in early trading on the London Stock Exchange.
"We have delivered solid growth in sales and operating profits, maintained a robust capital position, and met the target we set ourselves of generating a positive Group holding company cash flow in 2008," Thiam said.
Barrie Cornes, analyst at Panmure Gordon & Co., rated Prudential shares as a "buy."
"The valuation remains too low in our opinion," Cornes said, adding: "The shares are discounting too much uncertainty on the asset side of the balance sheet."
Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers, said Prudential had given "sufficient reassurance short-term regarding its financial strength," but said the management change adds to uncertainty and "doubts over capital adequacy levels are unlikely to go away any time soon."
Prudential confirmed it had considered bidding for AIA, the Asian subsidiary of AIG, the troubled U.S. insurance giant, but had decided against it.
It said its main area of shareholder credit risk exposure was within its U.S. subsidiary, Jackson National Life Insurance Co.
"As at 31 December 2008, Jackson's fixed income portfolio was approximately 24 billion pounds, of which 93 percent was investment grade and 7 percent high yield," the company reported.
Total defaults and impairment charges amounted to 624 million pounds in 2008, of which 78 million pounds were defaults and 419 million pounds impairment charges, the company said. The remaining 127 million pounds were losses incurred on the sale of assets.
"Given the movement in spreads observed in the U.S., unrealized losses for the year were 3.2 billion pounds. It should be noted that we apply a policy of holding assets to maturity, which in economic terms limits the impact of current price levels," Prudential said.
On a European Embedded Value (EEV) basis, Prudential reported a loss of 1.34 billion pounds compared to a profit of 2.96 billion pounds in 2007.
EEV is an alternative accounting basis for life assurance companies, reflecting expected future cash flows from sales in the year and updating assumptions based on experience.
Click here to return to FBIC homepage