By Kirstin Ridley
LONDON, March 27 Prudential Plc has been
fined 30 million pounds (46 million) and had its CEO publicly
censured for failing to inform Britain's regulator about an
ill-fated Asian takeover because it feared a leak.
The fine, one of the heaviest dished out by the Financial
Services Authority (FSA), rekindles bitter memories of a costly
misjudgement which Britain's biggest insurer and its Chief
Executive Tidjane Thiam are keen to consign to the past.
The FSA said it was left playing catch-up as Prudential
tried to ink the $35.5 billion takeover of AIA in 2010
- a deal that would have transformed the company and could have
damaged the stability and confidence of the financial system.
"Prudential, led by Thiam as CEO, failed to give due
consideration to its obligation to inform the FSA of this
transaction, which would have had a huge impact on the group,"
said Tracey McDermott, the FSA's head of enforcement.
"That was a serious error of judgement for which Prudential
is paying the price."
The deal, due to be backed by a record 14.5 billion pound
cash call, collapsed after Prudential's investors baulked at the
price and AIA's parent, U.S. insurer AIG, rejected a
lower bid. Shareholders were left shouldering 377 million pounds
in costs, sparking calls for senior heads to roll.
The FSA said Thiam played "a significant role" in the
decision not to contact the FSA about the deal, because of fears
of a leak. Nevertheless, it stopped short of declaring him unfit
to hold such a senior position and said it did not consider
Prudential's regulatory breaches "reckless or intentional".
One senior lawyer said it was extraordinary that Prudential
appeared to have based its strategy announcements to the FSA on
the basis of whether the regulator might leak news.
"I think Prudential must have realised the FSA would pursue
them to the ends of the earth for accusing them of being a leak
risk," he said.
Prudential's shares, trading without its entitlement to the
group's next dividend, extended morning losses to end more than
4 percent weaker.
At a meeting with its advisers Credit Suisse on
Jan. 31, 2010, Prudential directors agreed a key risk to the
success of the deal was a leak - and that the FSA "was one of a
number of parties which might be the cause of a leak".
But the regulator said Prudential wrongly allowed its
judgement to be so skewed by these concerns that it even failed
to disclose its plans at an FSA meeting on Feb. 12, 2010, when
it was specifically asked detailed questions about its Asian
strategy and its plans for raising equity and debt capital.
Despite repeated advice from Credit Suisse about the need to
inform the FSA and its UKLA listing authority about the plans,
Prudential decided it would only inform the FSA on March 1 - a
day before intending to publish the proposed deal.
However, on Feb 27, 2010, a media report about the deal
started circulating, prompting Prudential to inform the FSA and
send a letter in the early hours of Sunday, Feb. 28, to the
UKLA. This forced the authority to rush a decision about whether
to suspend the shares of one of the largest UK listed companies.
The FSA said during the course of its investigation,
Prudential had accused it of misunderstanding and misstating
events. Prudential had also labelled the fine erroneous and
wrong, unprecedented and disproportionate. It denied breaching a
listing principle it said was broad and general.
However Prudential said on Wednesday that, with hindsight,
it regretted not informing the FSA earlier about its plans.
"We wish to draw a line under the matter and to ensure our
constructive relationship with our regulators remains good,"
Prudential Chairman Paul Manduca said in a statement.
"Tidjane acted at all times in the interests of the company
and with the full knowledge and authority of the board. The
board wishes to express its satisfaction that all parties have
agreed to this settlement."
Prudential was fined 14 million pounds and its wholly-owned
subsidiary, The Prudential Assurance Co, was fined 16 million
for failing to be "open and co-operative" with the FSA.
The penalty is likely to be one of the last meted out by the
FSA, coming just days before the regulator is scrapped and its
successor body, the Financial Conduct Authority (FCA), is born.