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Brexit: Prudential could relocate M&G funds due to Britain leaving the EU

Prudential said its UK operations, which includes fund management division M&G, could be hit by Brexit

Zlata Rodionova

Wednesday 10 August 2016 16:04 BST

(Reuters)

Prudential, the UK’s largest insurer by value, has said it is considering shifting funds from M&G, its assets management business, to Dublin or Luxembourg following UK’s vote to leave the EU.

A tenth of Prudential’s M&G’s £255.4 billion in assets under management are from EU clients.

Anne Richard, the chief executive of M&G, said the decision to move assets will depend on the outcome of UK’s negotiations with the EU.

"What we are trying to do as a business is give ourselves options so we are in a position to react and adapt to whatever negotiations come through over the next year or so regarding Brexit," Richard said.

"We have, at the moment, business domiciled in both Dublin and Luxemburg so both of those would potentially be options for us if we felt that we should have additional funds domiciled in continental Europe," she added.

British insurers were hit hard in the immediate aftermath of the Brexit vote, with share prices tumbling on expectations that the fallout in the broader economy would hurt the firms.

"On Brexit it is a challenge for the whole industry in that we don’t know exactly what form it will take. Will there be fund passporting from the UK to Europe, and vice versa, or not?" Richard said.

The news that Prudential UK operations could be hit by Brexit came as the group released its first half results.

Prudential posted a 6 per cent increase in first-half profit as a jump in earnings at its Asia business helped it to beat analyst estimates and offset lower profits from M&G

M&G’s operating profit declined by 10 per cent to £225 million.

6 ways Britain leaving the EU will affect you

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1/66 ways Britain leaving the EU will affect you

6 ways Britain leaving the EU will affect you

More expensive foreign holidays

The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more

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6 ways Britain leaving the EU will affect you

No immediate change in immigration status

The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay

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6 ways Britain leaving the EU will affect you

Higher inflation

A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum

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6 ways Britain leaving the EU will affect you

Interest rates might rise

The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output

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6 ways Britain leaving the EU will affect you

Did somebody say recession?

Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018

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6 ways Britain leaving the EU will affect you

And we wouldn’t even get our money back

All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget

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Mike Wells, Prudential’s chief executive, said the group has delivered good progress “in a period of heightened macro-economic, geo-political and investment market uncertainty and volatility”.

He added that Prudential continue to “successfully manage” the effects of markets turbulence in the US and the UK.

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