LONDON Prudential Plc has been fined £30 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 January 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 February 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, February 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.
($1 = 0.6599 British pounds)
(Additional reporting by Myles Neligan; Editing by Sinead Cruise and David Holmes)