Irate City puts Pru chief under pressure

Jonathan Bloomer, the chief executive of Prudential, was under pressure last night after he signalled that the insurer's dividend was likely to be cut despite recent assurances that the twice-yearly payment was not under threat.

He faces a crucial round of discussions with large investors after the company lost almost a fifth of its stock market value amid confusion about the extent of dividend cuts. The company also reduced its payouts to policyholders for the third time in six months.

Despite the Pru reporting a 2% rise in operating profit to £1.1bn, its shares fell 69.25p to 323.75p and affected other insurers which are due to report results in coming days. Aviva fell 5% while L&G lost 11% of its stock market value.

Major investors had believed the Pru had indicated it was unlikely to cut its dividend. Yesterday they punished the insurer for its apparent change of heart and for not giving more details about future policy. One shareholder said: "The manner in which this is being done lacks clarity."

The company's decision comes months after Michael McLintock, who runs the Pru's M&G fund management arm, urged blue chip businesses to maintain their payouts to shareholders.

Mr Bloomer said the Pru would not be more specific about the dividend until July when the interim results are due to be published.

"It is about uncertainty. It is just not prudent to commit to a dividend for the year ahead at this point with the market as it is," Mr Bloomer said. "We have not said we will cut the dividend, we have just said that we will not make that decision until we have to in July."

The City interpreted this as signalling dividend cuts, ranging from 20% to more than 50%. For 2002, the Pru said its total payment would be 26p, compared with 25.4p last year. The final dividend was 17.1p.

Controversy over the dividend came as the company admitted that investors are being sounded out about a new pay deal for Mr Bloomer to replace the £18m, three-year package it was forced to abandon last year in the face of a shareholder revolt.

City sources said the change in the dividend policy may have been forced on Mr Bloomer by the new chairman, David Clementi, former deputy governor of the Bank of England. Mr Bloomer denied this, saying the decision had been unanimous at board level.

Mr Clementi said that, while the company recognised the importance of cash payments to shareholders, "the board believes that it would be inappropriate to recommit at this time to the current dividend policy".

This prompted analysts at Deutsche Bank to recommend selling the shares and to reduce their price target from 300p to 293p.

Mr Clementi pointed out that 70% of the Pru's new business profit was generated outside Britain, particularly in Asia and the US. This is why some analysts support a change in dividend policy, because it will allow the insurer to inject more capital into rapidly growing businesses.

The Pru tried to focus on its relative financial strength and said it would not need to follow Standard Life in asking the financial services authority for a waiver of its solvency rules. It did admit that its free-asset ratio had fallen to 8.4% from 12.2% .