ΒιΆΉΤΌΕΔ

But we all know it'll go through in the end. This little huffing and puffing is just staged PR.

> It has sent out a powerful signal that it is prepared
> to publicly embarrass even the mightiest and proudest
> of City institutions, as and when it is concerned that those
> institutions may be biting off more than they can comfortably
> chew.

It's always best to squish Sir Greedies before they grow
too big. Squishing a large Sir Greedie makes an awful mess.

After the election? Well who knows what the FSA will say, but it is about time they said something as all the money institutions seemed to have a hand in the situation as it is now.
Time to help us all for the future and into the long term, not just between shareholders meetings.

I have no real doubt it will go through but I reckon on terms that mean, once again, a big company is sold off abroad.. And now I am fed up of my hard earned supporting those abroad. After all how is this country go to improve itself?

Interesting though the two blogs on the Pru takeover of AIA have been, nowhere have you told us WHY the Pru wants to take on AIA given that the "Asian businesses consume bucket-loads of lovely jingling wonga" in contradistinction to the UK business, which generates cash. Why take over a business that seems to be losing money, especially when the Pru's largest shareholder, Capital, opposes the takeover? What is going on here?

This story is a wee bit boring.

Perhaps we should be considering, on the eve of a general election and knowing that the 'new' government of whatever political persuasion will have to bring in varying degrees of austerity measures, whether people will take to the streets in acts of civil unrest against the establishment and bankers - as has been suggested on this forum many times in the past - in a way similar to what has occurred in Greece today.

Now that might scupper the plans of many large insurers and finance groups.

Be clear, I am NOT advocating burning banks or bankers.

Mr Peston, Squire


You write: ..Asian businesses consume bucket-loads of lovely jingling wonga.

As a mere plebian pedant I would suggest that wonga these days does not jingle, it whispers.

And to paraphrase the old Nursery Rhyme :

Gordy is a Scotsman
Gordy is a thief
Gordy came into our house
And stole a leg of beef

By leg of beef I mean pension pots....including Shares of a vast array of Financial Companies...through inadequate control of the Financial Sector plc UK.

Inadequate Elites do not Rule OK !

Here is another view:

Perhaps the FSA's move is predicated on the fear of a Tory dominated government and the FSA being abolished and because of that they chose to show their teeth?

Or the FSA fears diminution of its power when more and more financial services companies move abroad so it is trying to frighten the rest into silence by bullying the Pru?

#4

The nature of life insurance companies is they make losses now but profits later on.

When a policy is started it costs commision to the broker and setting up costs which take about 10 years worth of premiums to break even, after 10 years all the premiums paid are profits.

So AIA are making losses now because it's expanding, but in a decade they'll be making more money than the UK business could ever dream of.

When the discussion is about "to big to fail" we have continued growth of financial institutions....seems the message isn't clear. There are apparently two economies, the public one that is not doing all that well and the financial services one that is doing very well...some disconnect here...

The FSA has suddenly at the eleventh hour acquired some "cohones".

I have commented several times about this takeover of AIA and each time I have pointed out that the deal makes no sense to Pru shareholders and UK policyholders.

The FSA's concerns are as follows.

The Pru has a huge amount invested in the UK to support huge liabilities that it has to both life and pension policyholders in the UK. To support this they have to maintain an amount of assets in surplus of their liabilities to ensure that should we die or when we retire we or our beneficiaries get paid out.

This percentage is considerably larger than the surplus banks were required to hold. One of the ways insurers advertise their strength is to advertise by how much their IGD surplus is (see link immediately below for Aviva's 2009 results with the surplus front and and centre as it were) in excess of the required amount.



The FSA's concern is that in buying AIA this surplus will drop dangerously unless more money is raised. They are also concerned that policyholders in the UK will be used to fund what could be speculative growth in Asia.

The fear being is that if this all falls apart then there may not be enough money to pay your pension or pay out your life policy in the UK.

A few people have raised an analogy with RBS and ABN. To be honest the analogy whilst not 100% accurate isn't without reasonable foundation.

"So selling the UK may not be a rational option - because, paradoxically, the FSA might decide that if the UK went, the Pru would have to hold relatively more expensive capital relative to assets than would otherwise be the case."

The FSA is not the world's insurance regulator, it regulates insurance on behalf of UK policy holders, or participants in UK insurance markets. If the Pru sold the UK business, the FSA would continue to concern itself with the UK business only, under new ownership. Not the Pru.

"Alternatively, the Pru could raise more lower-quality capital in the debt markets."

Interesting concept. Debt liabilities as a security buffer towards your future insurance liabilities.

Keep in mind that the backers - Prudential’s bankers - are Credit Suisse and JP Morgan. Start thinking low-interest derivatives, Credit Default Swaps, think what may or may not be in the Prospectus or on the balance sheets.
The FSA has every right to be concerned about the β€œcapital position of the enlarged group”. The FSA, quite rightly has been pushing insurers and banks to be far more risk-adverse.
The Pru has been known as one of the best capitalized insurers in Europe with surplus capital of Β£3.4B.
AIA holds a similar position in Asia.
It seems that the "introduction" of Asian investors will be vital at a time when Prudential's existing shareholders have doubts about the acquisition.
Prudential, which is already listed in London, is planning to list in Hong Kong by May 11, with a secondary listing set for the same day in Singapore. No new shares will be issued, which means that investors in the Asian shares would have to buy shares transferred by shareholders of the London-listed stock, but companies listed by way of "introduction" are often plagued by low trading, since supply & demand of the stock is concentrated in what already exists.
Hong Kong does not allow banks involved in listing a company to boost its liquidity, as this is perceived as market manipulation - unless the banks get a waiver from the exchange. With the waiver, the three bank advisors to Prudential will be allowed to SELL SHORT Hong Kong shares of Prudential, thus creating a ready supply of the stock and avoiding low liquidity.
We have here a new game because the use of liquidity providers specifically using SHORT SELLING is unprecedented.
Do these Wall-Street boys ever stop!

#8

Thanks from #4. But please tell me why Capital opposes the move if you are right.

Now everyone who has been watching will have noticed over the past two years how many companies and financial institutions have made substantial moves East, or established a meaningful presence there (including RBS). I have drawn attention to this before. Because they have their ear to the ground, and can read balace sheets and income and expenditure statements, they know how dire the predicament of the UK is. In fact, they know that there is not a hope in hell of the UK coming right whoever the government may be. They might be captains of commerce and banking, but they don't aim to go down with the ship, so they are quietly moving to the bright new sphere of world economic activity, there to watch in comfort while Brittania sinks beneath the waves.

#8 I don't think this is accurate - if 10 years of premiums go towards brokers and setting up costs, and the rest is profit for the company, what exactly does the policyholder get? Zero?

In reality this kind of calculation depends on the length and type of policy, and a number of other factors. What is generally true is that it can take a long time before profits from a policy are realised, and in the meantime capital must be held as a security buffer. Maturing policies release capital, new policies absorb capital. A fast growing business (like AIA) has few of the latter, many of the former. A mature business (UK) is the opposite.

smells like a huge scam - with UK shareholders and policy holders losing out in the long run -

At least it give pru investors time to pull out their money especially after what happened to the banks.

Insurance was & remains based-upon fear-&-gambling; Enron-style off-book accounting underwrites mortgage, other-loans & 'shaky' business-practises.
Keen to-fly commercial-aircraft BA [Google BA 009]... adopting Ford Pinto model, acceptable-losses affordable.
Investments [shares, cash...] are of 'unknown-worth', exposure [BP Rig compensation to trawler operators... delays] easily running-into billions, if not the trillion-dollar mark.
AIG bailed-out of these wonderful-assets.
Would NOT touch at ANY-PRICE, including US$1 for the ENTIRE-BUSINESS.

Monies held by Pru UK, Lloyds Banking Group... are a handy piggy-bank for Brown... to tax, invest... at-will.
Pensions, health-care... require cash TODAY; having flogged-off gold, utilities... property, pension-pots are in the cross-hairs.
Weighing-a-pig does NOT change it's-weight; swopping for an annimated-bag without proper-audit [due-dilligence] is hardly an-alternative.

So Freddie Mac wants some more money to stop the ship from sinking ?
Please follow the link below :


I think the Pru would be wise to hold off on this deal,things are happening in the market place which indicate all is still not well.
The bail out money has not cured the problem just postponed it, everybody on this blog site was well aware of this.
The Pru could be biting off more than it can chew and it could end up going the same way as the RBS and there big take over plans.
The financial services sector is in a bigger mess than they are letting on this further bail out confirms that.

Shouldn't that be stable doors Robert..?