Britannic Group sells mortgage lending division

Britannic Group, the troubled insurer, today announced the sale of its mortgage lending subsidiary for ?18.7m, casting uncertainty over the future of 250 jobs.

Britannic, which is based in Wythall, Birmingham, is selling Britannic Money to the Paragon group. Paragon said that it would seek substantial cost savings from the deal, adding that there would "undoubtedly" be job losses among Britannic Money's 250-strong workforce.

Nigel Terrington, Paragon chief executive, said that it was too early to say how many jobs would go. However, he added that Paragon was looking to build Britannic's business and would try to keep job cuts to a minimum.

Mr Terrington said: "At the very least, this will end a period of uncertainty for Britannic Money's staff and give them a new focus for the future."

Britannic Money, formed in 1986 under the name Mortgage Trust, was owned by First Active until January 2000, when Britannic Group acquired a 60% stake. Britannic acquired the whole of Britannic Money in December last year.

"Britannic Money continues on course to achieve its break-even target this year. However, Britannic Money is no longer core to the group's strategy," the company said.

"In addition, the mortgage market remains highly competitive, and Britannic Money lacks synergies with the rest of the group, making it difficult for Britannic ... to earn an acceptable return on the invested capital."

Britannic last week announced the departure of managing director Bryan Portman in the latest twist in the saga of the troubled group. Earlier this year, it shocked the insurance sector by announcing that it would freeze annual bonuses to policyholders and axe its dividend in a move designed to save the group ?25m a year.

Mr Portman had been under pressure to improve the performance of the group, whose Britannic Assurance division shut its with-profits fund to new business in March to shore up its finances.

The FTSE 250-listed Paragon is the UK's largest independent specialist lender, offering residential investment mortgages and personal, retail and vehicle finance.

The deal will allow Paragon, based in Solihull, in the west Midlands, to almost double its assets under management, adding Britannic Money's ?2.2bn worth of loan assets to its own, which are worth around ?2.7bn. Paragon said it planned to rebrand Britannic Money under the original Mortgage Trust title.

The sale will cost Britannic ?25m, because Britannic Money is being sold at less than its valuation in the group's last accounts.

Like other insurers, Britannic has been hit by the worst bear market in share prices for 30 years, which has eroded insurers' capital bases and put pressure on their ability to meet policyholders' claims.

However, Britannic stock has fared worse than most UK peers this year, lagging the sector by 20% after it issued a profit warning in January and scrapped its year-end dividend.

Britannic Group was virtually unchanged in early afternoon, trading at 241p.