City in line for £500m fee payout in Prudential deal

The City is set for a £500 million-plus fee bonanza if Prudential gets its record-breaking rights issue and Asian takeover away successfully.

The vast bulk of the fees will go to underwriters and sub-underwriters of the £14.5 billion right issue.

They will share £435 million or 3% in fees. But the split between the three lead underwriting banks — Credit Suisse, HSBC and JP Morgan Cazenove — and the sub-underwriters will be unusually favoured towards the latter.

These are institutional shareholders who generally tend to be existing investors but are prepared to take up more than their full allocation of shares.

Sub-underwriting fees used to be as low as 1.25% but rose to 1.75% with Lloyds Banking Group's
£13.5 billion issue last year.

Prudential is likely to offer its
sub-underwriters up to 2%.

A source said: "We are keen to see support from long-term investors and, of course, as an institutional investor ourselves we are not unsympathetic to them."

Financial advisers to the deal are led by James Leigh-Pemberton at Credit Suisse and Jonathan Wilcox at JP Morgan Cazenove.

There is also a key role for Ondra Partners, a boutique investment bank set up by Michael Tory and other former Lehman bankers. Slaughter & May's William Underhill leads the legal advisers.

A major element in the costs will be foreign exchange hedging. Pru has to ensure the £14.5 billion rights issue delivers the $20 billion (£13.87 billion) it must pay AIG in cash when the deal completes in the Autumn. That hedge is likely to cost tens of millions of dollars.