ΒιΆΉΤΌΕΔ

My guess is that this is Pru's O'Connor moment. The deal that changed Man from a stockmarket also ran was its purchase of the O'Connor derivatives business, and the sale of the sugar trading business to management. The guy behind this transforming deal was the guy who appointed the current Pru ceo - Harvey McGrath

And mere mortals such as me still ask if self regulation is a mockery?
In the real world bribery is the word used here, in politics, corruption but in business it is an opportunity.
Maybe I should have listened harder at school to the english lessons to understand the language more than I do now. Maybe I should have gone to a bigger school as this all implies that size does matter.

What exactly are these banks doing for the Β£850M? Hopefully somewhere there is due diligence uncorrupted by the fat fees going!

The Asian markets may be booming but the risks are higher and in the long term there is global warming adding to the risks.

Robert Peston wrote: So here's the question, as old as the City itself (well almost): is the City there to facilitate wealth creation for the benefit of those who provide it with finance, which is actually you and me through our pension savings and deposits; or are the judgements of those who work there as bankers and advisors flawed by the opportunity to skim off rents for their own enrichment?
------------------------

None. Our wonderful City does God's work, didn't you know, Robert? In the past such institutions were known as Kings and Queens, Popes and Bishops.

We, the peasantry, on the other hand, must always accept this with a blind faith as otherwise the Almighty God will punish us! Amen!

So, at least partly, via our pension funds etc, this is British capital being invested in a pig in the poke in Asia, rather than in the British economy.

For the "boys" in the City, it's win-win, earning fat fees, at least indirectly at our expense. This will be yet another factor distorting the British economy in favour of the South East, via house prices etc, disadvantaging everyone else.

So, whether this deal succeeds or not, the real economy of Britain barely benefits at best, and suffers another hangover at worst. It illustrates everything bad about global capitalism.

Tidjane Thiam

He's just another free-market anarchist whose indoctrination to 'the club' was made during his 'sabatical' in the the US (just like many of our politicians have been btw

All we need to know is how much is he making out of this deal!

'As a result of Prudential attempting to take over AIG's Asian arm AIA in a Β£23.4 billion deal, he is expected to see a pay packet of Β£5.2 million this year. This includes shares worth a potential Β£2.7 million under a rolling three year incentive scheme, on top of a Β£900,000 salary and annual bonus of up to Β£1.6 million.'

> not that long ago, for example, that Sir Fred Goodwin of Royal
> Bank of Scotland and John Varley of Barclays were whispering in my
> shell-like that the Dutch bank ABN was a corporate dream come true

What is it about our sick culture that makes such men fall in love with gigantic, inflexible behemoths that try to dominate the world until they collapse under the weight of their own hubris? What amount of fear and greed could bend people so far out of shape? And what is the remedy? Break them up, I say!

Amazing isn't it?!

21st Century capitalism really has handed over control of the whole system to this new "elite class" - the global money men (yes, mostly men...) - maybe 5,000? individuals. A small group of bankers, asset managers and multi-national company directors who are proceeding to arrange things largely in their own interest.

At what stage will the shareholders of the world spot the same flaw in the system that Alan Greenspan did when he realised that corporate western organisations (banks in his case) are not actually being run in the interests of their shareholders at all, but for the primary benefit of their directors.....(see ?

Maybe never?!.....
Because the shareholders of the world have entrusted the management of their wealth to part of this very same elite?!

> So here's the question, as old as the City itself (well almost): is the City there
> to facilitate wealth creation for the benefit of those who provide it with finance,
> which is actually you and me through our pension savings and deposits; or are the
> judgements of those who work there as bankers and advisors flawed by the
> opportunity to skim off rents for their own enrichment?

"The City" has had its day. We're breaking it up and distributing its functions now. That's what this "Internet" thingie is about, you know! So the question may not be relevant much longer - with any luck β€œThe City” will disappear in a giant cloud of hubris when people we realise that it does - absolutely nothing at all (apart from skimming, which is the last area of great expertise).

Inflation up.
Unemployment up.
Pound down.
Interest rates on the floor.
Pension contributions falling.
Green Shoots struggling to survive in frost of austerity measures.

Choice of business story that matters - fees paid by one large UK plc to banking bankers.

And I quote 'So here's the question, as old as the City itself (well almost): is the City there to facilitate wealth creation for the benefit of those who provide it with finance, which is actually you and me through our pension savings and deposits; or are the judgements of those who work there as bankers and advisors flawed by the opportunity to skim off rents for their own enrichment?'

Well if the question is that old why blog about it as if it is news?

In fact yuor question is flawed because your either/or is not an either or question.

The answers are yes and yes. The City should be there to create wealth creation. The judgement of all those who work there are flawed by the opportunity to get rich quick.

I have been an accountant - when you are being measured by your fees and you are discussing a client it is inevitable that you first think in terms of how you are measured.

But my point is that we all know this and RP is making a blog out of it?

He could have written a much shorter piece like,

'Aren't I clever I've found out the Pru has paid Β£850m in fees to bankers so far without doing anything - discuss.'

This finally hits at the very nub of why the banks make so much money and why their employees are so well remunerated. The point is that these fees total about 6% of the money that will be raised, so whilst the Pru pay 850M they are raising 14.5B. If this then adds profit to the bottom line, although the deal will have cost a lot, it will have made even more - it's another angle on the old argument about a smaller slice (due to fees) of a bigger pie (raised by the banks).

The puzzling issue is the question of competition. If the price charged by the banks for their services is such that they are making a very large profit or are simply very inefficient then conventional wisdom says that other businesses will move into this highly lucrative market at a cheaper price until the last one in prices nearest to actual cost. However, despite the presence of many banks, prices seemingly remain very high - one has to say that it looks like the market-place for investment banking services, corporate finance, stock issues etc. is not functioning well - there's a lot of 'friction'.

Solve that problem and you fix the banking industry.

The thing that annoys me most about journalists is how they continually misinterpret things : to say that the ANB Amro deal led to the downfall of RBS and was thus a bad deal is plain wrong. The problem with the ABN Amro deal was the way it was financed, not the underlying logic - and it was the financing costs that contributed to the losses of RBS because RBS borrowed so much of the money as opposed to issuing shares to the vendors or to its own shareholders in order to make a cash purchase. The reason RBS needed state bailout was not directly because of ABN but everything to do with the fact that RBS could no longer raise cash on the interbank market due to worldwide fears it was overexposed to US sub prime mortgages. But ABN did contribute to the massive losses.

But back to the Pru - he great thing about the AIA deal is that it is being financed predominantly with cash and with shares - in the same way that Vodafone financed their game changing deal with Mannesman. This financing will therefore insulate Pru from being lumbered with huge ongoing financing costs if the deal goes sour, although it won't prevent investors taking a huge haircut if Tidjan can't make the deal work.

If Peston wants a scandal to report on he should focus on the small shareholders - how many of them have enough cash to buy 11 new shares for every 2 old? This is a rights issue and a deal that is fine for institutional investors with ready supplies of cash, but for private investors who never anticipated a rights issue on this scale it is a bit of a scandal - and surely one that robert would delight in getting his teeth into and creating a lot of hot air about not very much.

Amazing isn't it?!

21st Century capitalism really has handed over control of the whole system to this new "elite class" - the global money men (yes, mostly men...) - maybe 5,000? individuals. A small group of bankers, asset managers and multi-national company directors who are proceeding to arrange things largely in their own interest.

At what stage will the shareholders of the world spot the same flaw in the system that Alan Greenspan did when he realised that corporate western organisations (banks in his case) are not actually being run in the interests of their shareholders at all, but for the primary benefit of their directors.....(see ?

Maybe never?!.....
Because the shareholders of the world have entrusted the management of their wealth to part of this very same elite?!

---------------

If you want to be righteous about it then don't invest. Keep your cash yourself, work for yourself, produce your product from scratch for consumption by yourself. See hwo well that turns out for you.

11. edge540:

"The puzzling issue is the question of competition"

Exactly. In the US, it is (or at least, it used to be) a long-standing convention that no bank would undercut another on M & A-type work unless the rate being charged was well over 5%. So no corporate could get work done for under 5%.

One reason why competition may not be operative in this instance, of course, may be that the deal is simply so big that there's enough action for everyone to share, so why risk missing out by rocking the boat?

Either way, it's pretty unedifying.

RP makes a good point. The issue is how can investors (individuals contributing to pension funds, buying shares, etc) be protected from what I see as self interest from the senior ranks in these businesses. With significant bonus payments which are "annual life changing moments" no senior exec needs to worry about long term shareholder value. Indeed you have fantastic parachute payments into retirement!

It is ironic that a company that provides pensions and insurance is entering into such speculative activity. As someone who is circa 25 years from retirement I seriously question the value of investing in a pension plan when all that is happening is that the returns are being absorbed by brokers, lawyers and senior execs. The crumbs are being left for the rest of us! The might of the industry is however covering this up.

# 11. At 11:12am on 18 May 2010, edge540 wrote:

> If this then adds profit to the bottom line, although the
> deal will have cost a lot, it will have made even more.

I do wish people wouldn't muddy the waters like this. Look,
they're a bunch of gougers and we're putting a stop to it.
Get used to it, OK? The City no more "creates wealth" than
a water company "creates water"! It's a utility, and the wages
must reflect that now.

completely agree with edge 540 - in many other sectors and industries if companies are making super-profits there would be moves to reduce barrier to entry costs or indeed forced break-ups. This is due to the lack of competition - why is there not more?

1. At 10:12am on 18 May 2010, Mikehogan wrote:
My guess is that this is Pru's O'Connor moment. The deal that changed Man from a stockmarket also ran was its purchase of the O'Connor derivatives business

Sorry, but I believe it was SBC who purchased O'Connor in 1994 - a few of their associates are still around in UBS -although most retired comfortably many years ago!

If there's a conflict of interest in some quarters then surely the solution is to pay as much to an independent analyst than they would receive from Pru if the deal goes ahead.

And surely not every single analyst in the City is in on this deal, Robert?

It seems like the old story. A British company trying to grow in the global market by expanding into new areas is being pilloried by the City vested interests who are worried about its likely downward pressure on the Pru's share-price. Had an overseas company been interested in buying the Pru and likely transferring its operations abroad the same characters would be pointing out the huge shareholder value benefits of cashing in on the share-price hike and probably clamouring to help raise the money for the deal.

These venal vultures will slowly devour us all. How delightful though to see that the Pru's bold and visionary leader is an African. Let's hope it succeeds and really sticks it to the City Suits! It gives you hope!

"None. Our wonderful City does God's work, didn't you know, Robert? In the past such institutions were known as Kings and Queens, Popes and Bishops.

We, the peasantry, on the other hand, must always accept this with a blind faith as otherwise the Almighty God will punish us! Amen!"

And still the jealous little boys keep spouting their puerile pap.

Its funny how nobody had a problem with "The City" during the time that everyone was profiting out of it. Now that the gambler's luck has gone the other way, everyone is being a self righteous prat about it.

But nobody is forcing anyone to invest or take part in anything the City does. If you don't like it, don't invest.

# 17. At 11:52am on 18 May 2010, view_from_spen wrote:

> completely agree with edge 540 - in many other sectors and industries
> if companies are making super-profits there would be moves to reduce
> barrier to entry costs or indeed forced break-ups. This is due to
> the lack of competition - why is there not more?

Perhaps because they are big, and we need to break them down to size?

I hope taht Pru have got some talented project managers if this deal goes through. Integrations of this size are notoriously difficult.

" Exactly. In the US, it is (or at least, it used to be) a long-standing convention that no bank would undercut another on M & A-type work unless the rate being charged was well over 5%. So no corporate could get work done for under 5%."

1. Absurd - M&A deal fees are measured in basis points not percentage points. A 5% advisory only fee would be huge.
2. The c.6% fees on this deal are about banks taking risk - not bankers pushing paper. In addition to the due diligence and distribution work, the banks crucially underwrite the share issuance - meaning that if shareholders not take up all of the shares on offer - the banks are left on the hook. If you want someone to take that sort of risk - you have to pay them...
3. Banks, and certainly the ones here, are listed. We (directly or indirectly through pensions and investments) also own them in the same way as we own Prudential. Cheer their demise at your own peril.

# 21. At 12:36pm on 18 May 2010, Stan Pomeray wrote:

> And still the jealous little boys keep spouting their puerile pap.

Let's not add any more to it now, Stan.

> Its funny how nobody had a problem with "The City" during the
> time that everyone was profiting out of it.

Everyone? That's rather a lot of people, and I can't see how
you could speak for them all. Those "City Slickers" have been
at it for years - we all know that. Only now we're ganging up
on 'em!

Congratulations on a great piece Robert - It's about time someone started asking these difficult and basic questions.

Are the financial institutions there to make money for the shareholders who invest their own capital at a risk or are they in existence simply to make money for their own employees and directors?

That is a huge question which will be answered in the coming months.

21. Stan Pomeray:


Ah. Another banking apologist trying to protect his god given right to the money trough.

"If you don't like it. Don't invest"

I didn't. Not willingly. The governement did on my behalf, against my wishes, to bail out the City's parasitic behind. But don't worry, like Jacques Cartier says. We're onto you now. We're going to break you up. The days of the status quo will soon be over.

Look, slowly but surely we're making progress:




one down. Only another ten thousand or so 'prats' to go.

The banking model is based on what is good for bankers, not investors. Just use one of the instruments that caused the crash, as they are all still in play, and there you go. When it all falls apart the governments will bail you out....high risk that is risk free for the bankers...only the investors and the taxpayers lose. The object of banking these days is to make bankers money not the depositors. Banks are looking for more personable front men, like carnival barkers trying to get people in the tent to see something that is presented as one thing but is really something else...in the end they have your money.

Isn't this another example of the City taking a punt at the casino? And if it all goes pear shaped the Pru will go cap in hand to the City or the taxpayer or both, either way the poor old tax payer will not benefit. If it's a success it will be the City that creams off the profits and if it's a failure you and me will have to pay up either as tax payers or share holders. After recent history don't we need to come up with a new way of generating wealth rather than just City speculation? How about making things to sell? Now there's a novel thought. Call me a cynic if you want but they way the City behaves has made me that way.

13 hackerjack wrote:

"If you want to be righteous about it then don't invest. Keep your cash yourself, work for yourself, produce your product from scratch for consumption by yourself. See hwo well that turns out for you".



This doesn't work either, because the banks into which I have to put my cash are signed up to the very same closed shop of money-men with the same idea of "stuff the customers let's run the organisation in our own interest".

I'm not casting doubt on the whole concept of the western open market trading system, or being righteous about it, I'm simply wanting a better deal from those who look after my money, and pointing out that a properly functioning market here simply does not exist.

Meaning we just have to break these enormous (complex) cartels up.

26. At 1:51pm on 18 May 2010, James wrote:


> Congratulations on a great piece Robert

I guess it's a start...

> Are the financial institutions there to make money for the
> shareholders who invest their own capital at a risk or are they
> in existence simply to make money for their own employees and directors?

Important as that question is, what about the fundamental question - do voters tolerate business because it makes their lives better, or just as some kind of "special favour"? If business doesn't please us, the voters, we'd shut it down. So why are some of these giant, risky, shaky and dangerous behemoths still lurching around "The City" scaring people? When will they learn who is the boss?

It's a bit like a warship builder trying to convince the people of all the land-locked countries that they really, really, need to have a whole lot of armed ships and we've got a great friend who can supply Naval Uniforms of the best quality at reasonable prices.

Β£850 million? Now how many libraries up and down this country would that save. Aren't we, after all, in this together or is it just us little folk?

21. At 12:36pm on 18 May 2010, Stan Pomeray wrote:
But nobody is forcing anyone to invest or take part in anything the City does. If you don't like it, don't invest.

No one, not one person from the City or the government called me to ask if I would mind bailing you lot out!

The arrogance! The bare-face cheek of the money men, the gamblers and everyone else involved in the sordid financial industry is simply astounding!

"To put it another way, much of the City has a vested interest in seeing the Pru complete this massive takeover. And there would be even more fees for bankers to come, if Thiam were to follow up the purchase of AIA with the sale of the Pru's operations in the UK and the US - which he told me he would sell if the price were right."

Done deal then!

(Any chance we could know in advance what the taxpayer bailout and quantitative easing, costs will be? Would Tower Bridge alone cover it, perhaps?

# 33. At 3:08pm on 18 May 2010, copperDolomite wrote:

>>21. At 12:36pm on 18 May 2010, Stan Pomeray wrote:
>> But nobody is forcing anyone to invest or take part in anything
>> the City does. If you don't like it, don't invest.

> The arrogance! The bare-face cheek of the money men, the gamblers and
> everyone else involved in the sordid financial industry is simply
> astounding!

Bring back the birch!

Does anyone also realise that when Lloyds Banking Group raised capital earlier in the year to avoid becoming almost completely public-owned it paid out Β£500M in fees to the city.

As we own 43% of the bank this means the tax payer has directly given the city Β£215M. No one reported this at all at the time.

And we wonder why the country is in such a financial mess!

Yet another example of City back scratching. Look out for the new appointment of Pru men to the directorships of leading institutions.

I do hope these are profitable deals so government can tax them very hard.

Yes! Let's break everything up!

Vosafone is making money in new markets. This cannot be! Cut Vodafone down to size! The UK operations are abysmal. Let it go down the drain. T-Mobile and Orange together? No! Break it up!

What about Prudential? Well, if it does collapse (in its current shape), I'm sure the Gov. will come to the rescue. Not good! This cannot be! "Tight coupling" and "not redundant". So break it up further I say - make Mini Prus out of it.

Let's break everything up!

LOL.

Microsoft is too big! Break it up! Never mind that it was the brainchild of individuals. Screw them! Break it up! Office and Windows are everywhere! Throw away at least have of computers that run Windows or Office!

Nothing can be too big. Nothing can be a "behemoth". No Microsoft!

And no national banks like Barclays, etc. Having national presence is not good. We need to make it smaller. Gergraphically constrained as well. So nothing bigger than "regional" banks.

Dammed if you do and damned if you dont.
There is not a cigarette paper's distance between the political parties who oversee the protection of our pensions. With the current lot, finance seems to be in their blood!.
Our pensions are being leached, eroded and robbed by the city boys who create hubris and take a percentage of rises and falls.
If we try to invest our hard earned earnings into property or shares in companies which we choose, we are going to be hammered by CGT

38. The Patriot
"Let's break everything up! LOL."


Sigh. Not everything dumbo. Just the private companies that pose such a systemic risk to the entire financial system that they have to bailed out the moment they get the sniffles. It's quite simple really.

No threat to society if things go wrong= No need to be broken up.


But you knew that really. You were just pretending to be a moron because you thought it was amusing.

Bless.

Robert - try not being so gloomy - try recognising when a UK company has the guts to make progress and go out there and get business. Your comments as ever do their best to talk down the economy rather than help it out.

35. At 4:05pm on 18 May 2010, Jacques Cartier

Birch?

I'm thinking of the French innovation - the guillotine!

Tidjane Thiam wants the Pru out of the UK. That's the real story. It's not just him. Loads of investment bank types are looking for a way out too.

The UK economy is heading towards an implosion. We have too much consumer, housing and govt debt. So we have some choices:-

1/ We can spend the next 50 years poor and grafting to pay off this debt.
Or
2/ We quickly inflate causing the real value of the debt to fall.
Or
3/ We apply the law and sue the banks for mis-selling mortgages and prosecute them for fraudulently selling mis-sold mortgages as AAA securities. It means unpicking most residential property sales since 2001, and the mortgage providing and gambling banks going bust.

1. Isn't going to happen whatever Mervyn says.
2. Tried, trusted and already under way.
3. No one has done it. But there is a possibility of a class action to oppose possession proceedings if interest rates start rising.

The Β£ is falling, nearly 40% over the last 2 years. It will reach USD parity before the end of 2011.

Now is the time to use QE to invest in UK manufacturing and business.

I propose the following:-
1/ Back dated to April 2008, up to 5x matching interest free investment only loans direct from the inland revenue for business, particularly entrepreneurs and manufacturers, with easily extended fixed terms.
2/ 1-1 tax relief matching on all investment by business, on residential and business property improvements, on every new job for 2 years.
3/ A green field house building program.
4/ All public service wages to be reduced to reflect local costs using london as the fixed point.
5/ All contracts with the public services to be cut by 10% immediately and all PFI's to be fixed at current BOE rate using retrospective legislation if necessary.
6/ All further public service pension entitlements to be frozen and the pension contribution to be stopped.
7/ Public sector wage rises to be no greater than the wage rise of the mode private sector wage.
8/ Limit on public sector wage spread of 12x. This is common across the rest of the developed world.
9/ Cut bureaucracy by having a single tax rate across the board for individuals and corporations with out exemptions. Make all threshold allowances transferable and have the same one for children and adults.

# 38. At 4:48pm on 18 May 2010, The Patriot wrote:

> Cut Vodafone down to size!

No way ... phone firms are trivial things that can be
replaced in 10 seconds. I couldn't give a hoot about any of
that.

> "Tight coupling" and "not redundant".
> So break it up further I say - make Mini Prus out of it.

It's great to have convert!

#38,
Are you sure? So nothing wrong with MS and Google being giants then? AS they're not in financial services? Damn! Those govs. and whatnot are so wrong then to accuse and fine them all sorts!

#45,

Telecommunications trivial? LOL. That saya it all!

At the end of the day, the Pru deal will go through. It makes sense! And shareholders/investors will reach the same conclusion - the rights issue will be oversubscribed.

In this age of secularism it is not fashionable to believe in God. Deride him, and the Church and popes and bishops and Uncle Tom Cobleigh and all. But just think about it: if we honoured the Bible from which these "wickeds" preach we would avoid greed and acquisitiveness and arrogance and self promotion and self-esteem and lies and deceptions. Indeed, this entire blog wouldn't exist because there would be no need for it. Worth a thought anyone?

48 Answer to your question is morality goes out of the window with the city lot.Its screw somebody financially or be screwed,the law of the jungle.
I wonder if any of them go to church? Confession time must be busy !, how can you screw millions of people over and then profess to being a Christian? The two do not seem to square, mind you there religion is making money and to hell with anything else.
By the way I am not religious just trying to get s grips on how these people sleep at night. Probably so high on coke and booze they have no trouble sleeping, after all they are very successful and command high renumeration packages.

@ The Patriot - So assured.

To all who disagree with one calling themselves a Patriot;

Men of England, heirs of Glory,
Heroes of unwritten story,
Nurslings of one mighty Mother,
Hopes of her, and one another;
What is Freedom? Ye can tell
That which Slavery is too well,
For its very name has grown
To an echo of your own
Let a vast assembly be,
And with great solemnity
Declare with measured words, that ye
Are, as God has made ye, free!
The old laws of England--they
Whose reverend heads with age are grey,
Children of a wiser day;
And whose solemn voice must be
Thine own echo--Liberty!

Rise like Lions after slumber
In unvanquishable number,
Shake your chains to earth like dew
Which in sleep had fallen on you-
YE ARE MANY - THEY ARE FEW!