Lloyds m&g takeover29 Aug 2018 15:45
Takeover of M&G could offer tantalising prospect for an ambitious Lloyds
loyds has just wrapped up a £1 billion share buyback launched in March because it had so much cash swilling around and had pumped out several special dividends already on top of its regular returns to shareholders.
Having excess capital is a nice problem for a bailed-out bank that only last year returned to full private ownership. Yet it also highlights a difficulty: despite large profits and a return to fat dividends, Lloyds’ shares are sluggish, while it cannot wring any more growth out of traditional lending as it is already pushing against market share limits that this or a future government might choose to scrutinise.
So António Horta-Osório, its chief executive, needs a new direction. Indeed, he has already named it: wealth management, where Lloyds has a tiny slice of the market, compared with about a quarter of Britain’s current accounts.
Once sleepy, the savings industry has been at the centre of recent merger and acquisition activity. Could Lloyds be about to wade in, too? It has had a dalliance. This year Lloyds toyed with merging Scottish Widows, its own insurance business, with Standard Life only for the deal to fall apart over how control would be divided.
Now attention is turning to an even bigger beast on the blocks in the form of Prudential’s British business, including M&G, its fund manager, which is being split off from the Pru’s faster-growing Asian and American divisions. Investors in the Pru are set to end up with shares in both businesses once the tortuous process of demerger is complete, perhaps in 2020. But would they not prefer a quicker deal with Lloyds, which could involve cash on the table?
Buying Pru UK, which has seven million customers and £342 billion under management, would be a big bite, even for Lloyds, as its price tag would be about £10 billion to £12 billion. Yet if it were to make the move, Lloyds would end up as a bancassurance colossus, a status it has long aspired to after buying the Widows business for a hefty £7 billion in 1999 and sticking with it during the dark days after the financial crisis.
Such a manoeuvre looks logical at a time when there is a pressing need for people to save more for their retirements. The government has freed up the market, giving more choice about how to do that. And insurance rivals are struggling with how to get access to potential customers — while Lloyds has them ready-made in the form of its 27 million current account-holders and distribution through its near-1,800 branches.
As an interesting added factor, if Antonio Lorenzo, chief executive of Scottish Widows, could make a success of such an ambitious takeover, he might emerge as the strongest candidate to succeed Mr Horta-Osório, his long-time senior colleague.
While Lloyds is an ambitious bank, it is also cautious. It raised eyebrows when it bought the MBNA credit card business for almost £2 billion last year, but it
Sign In
Follow the stocks
