Prudential/AIG deal: City firms in line for £1bn fees

The City can expect a fees bonanza from today's deal by Prudential to buy AIG's Asian business for $35.5 billion.

The biggest financial services takeover seen since the economic crisis began almost three years ago, it is also so complicated that bankers, accountants and lawyers could rack up almost £1 billion in fees.

On the takeover deal alone, bankers' fees could easily run to more than £500 million. Prudential's takeover, valued at £24 billion, is more than twice the size of Kraft's recent £11.9 billion swallowing of Cadbury, which generated more than £240 million in fees.

The bulk of those fees will go to Prudential investment banks Credit Suisse, HSBC and JPMorgan Cazenove because it is the aggressor. The banks will be on a "success" fee based on the outcome of the bid.

But they will also ratchet up massive income because they are running the $20 million rights issue Prudential is using to fund most of the $25 billion cash element of its offer. (The remaining $10.5 billion will be new Prudential shares issued to AIG.) This rights issue will be one of the largest ever seen in the UK.

Ignoring the state-backed rescue rights issues of Royal Bank of Scotland and Lloyds, the largest rights issue to date was HSBC's £12.9 billion last year.

Underwriting the Pru issue could earn the three lead banks another £470 million. AIG is being advised by Citigroup and Goldman Sachs.