May 25, 2010
AIA bosses predict ‘disastrous’ Pru takeover
Christine Seib in New York and Leo Lewis in Hong Kong
Prudential’s $35.5 billion takeover of AIG’s Asian insurance business will be a disaster, according to senior executives at AIA, the Hong Kong-based company that the Pru is struggling to acquire.
One source at AIA in Hong Kong told The Times that there was a “tangible undercurrent” of concern over the takeover and that several executives had questioned Prudential’s ability to manage AIA effectively.
The executives’ comments came as it was reported that Mark Wilson, AIA’s chief executive, had told friends and industry executives that he planned to quit if the deal went through.
According to press reports last night, Mr Wilson said that he would step down because the combination of AIA and the Pru’s Asian business was “unworkable”.
Two senior executives, Steve Roder, AIA’s finance director, and Peter Cashin, its legal head, have already quit the company.
The timing of the comments are inconvenient for Prudential, coming just hours before it debuts its dual listing in Hong Kong, with a secondary listing in Singapore.
Traders arriving early at their desks in Asia on Tuesday said that rumours over possible executive quittings would have a “definite negative” impact on today’s dual listing of the Prudential in Hong Kong and Singapore.
Prudential had said earlier this month that the 43-year-old American, who joined AIA in 2002 from AXA, the French insurer, would remain as chief executive under the new ownership.
AIG, which must extract maximum value from AIA in order to repay its giant US government bailout, scrapped a plan to float AIA in favour of a sale to Prudential, which was announced in March.
Mr Wilson had stood to make a fortune out of the float and would have been chief executive of the independent listed company.
Other top AIA executives are expected to follow him out the door, if the deal closes. One person at the company told The Times that a number of workers, also annoyed by the fact that AIA’s float was scuppered, were watching how Mark Wilson responds and intend to take their lead from him.
But the source also suggested that Mr Wilson may be allowing rumours of his intention to quit to try to get an early sense of his worth to Prudential, and that his decision to quit or stay would actually depend on how “hands on” Prudential intends to be in a region it has only limited experience in.
The Pru said on May 17 when it published its prospectus that Mr Wilson would remain as chief executive of AIA, suggesting he had given at least an informal commitment to stay on.
The timing couldn’t be more inconvenient for the Pru, coming just hours before its shares are due to start trading in hong kong and singapore.
The Pru declined to comment.
http://www.timesonline.co.uk/tol/news/world/asia/article7135625.ece
Showing posts with label Prudential. Show all posts
Showing posts with label Prudential. Show all posts
Tuesday, 25 May 2010
Saturday, 22 May 2010
A.I.G.’s Derivatives at European Banks Could Expose It to Debt Crisis
May 21, 2010
A.I.G.’s Derivatives at European Banks Could Expose It to Debt Crisis
By MARY WILLIAMS WALSH
The waves of financial trouble rippling across Europe could end up splashing at least one American institution: the taxpayer-owned American International Group.
A.I.G. has sought to unwind its derivatives business, which gave it a big exposure to Europe.
After an outcry over details disclosed last year about how the government’s bailout helped a number of European banks, the company intended to rid itself of the derivatives it sold to those institutions to help them comply with their capital requirements.
But its latest quarterly filing with regulators shows that the insurance behemoth still has significant exposure to those banks. A.I.G. listed the total notional value of these derivatives, credit-default swaps, as $109 billion at the end of March. That means if events in Europe turned sharply against A.I.G., its maximum possible loss on these derivatives would be $109 billion.
No one is suggesting that is likely.
Still, it would be a sore spot if A.I.G. once again had to make good on a European bank’s investment losses, even on a small scale. A spokesman for A.I.G., Mark Herr, declined to name the European banks that bought its swaps to shore up their capital.
A.I.G.’s stock has also fallen in recent days amid uncertainty over whether the continuing European debt crisis could set back an important, $35.5 billion asset sale. A.I.G.’s chief executive, Robert Benmosche, announced in March that the company would sell its big Asian life insurance business to Prudential of Britain, raising money to pay back part of its rescue loans.
The transaction needs the approval of 75 percent of Prudential’s shareholders.
Shares of A.I.G. fell seven consecutive trading days to close at $34.81 on Thursday. That was a drop of 23 percent since May 11. The shares recovered slightly on Friday, closing at $35.96.
A.I.G.’s swaps work something like bond insurance. The European banks that bought them could keep riskier assets on their books without running afoul of their capital requirements, because the insurer promised to make the banks whole if the assets soured. The contracts call for A.I.G.’s financial products unit to pay in cases of bankruptcy, payment shortfalls or asset write-downs.
A.I.G. is also required to post collateral to the European banks under certain circumstances, but the company said it could not forecast how much.
It was the collateral provisions of a separate portfolio of credit-default swaps that caused A.I.G.’s near collapse in September 2008. Those swaps were tied to complex assets whose values were hard to track.
The European bank assets now in question consist mostly of pooled corporate loans and residential mortgages. A.I.G. has said they are easier to evaluate and therefore less risky.
A.I.G. had hoped these swaps would become obsolete at the end of 2009, when European banking was to have completed its adoption of a detailed new set of capital adequacy rules, known as Basel II. Since A.I.G.’s swaps were designed to help banks comply with the more simplistic previous regime, the insurer thought they would serve no useful purpose after the changeover and could be terminated without incident.
But international bank regulators have yet to fully adopt Basel II. A.I.G.’s first-quarter report said “it remains to be seen” which capital adequacy rules would be used in different parts of Europe. Mr. Herr said A.I.G. could not comment beyond the information already filed with regulators. In its first-quarter report, the insurer said the banks were holding the loans and mortgages in blind pools, making it hard to know how they would weather Europe’s storm. Some pools have fallen below investment grade.
A.I.G. said the pools of loans and mortgages were not generally concentrated in any industry or country. They have an expected average maturity, over all, of a little less than two years. The company said it was getting regular reports on the blind pools and losses so far had been modest.
http://www.nytimes.com/2010/05/22/business/22aig.html?ref=business
A.I.G.’s Derivatives at European Banks Could Expose It to Debt Crisis
By MARY WILLIAMS WALSH
The waves of financial trouble rippling across Europe could end up splashing at least one American institution: the taxpayer-owned American International Group.
A.I.G. has sought to unwind its derivatives business, which gave it a big exposure to Europe.
After an outcry over details disclosed last year about how the government’s bailout helped a number of European banks, the company intended to rid itself of the derivatives it sold to those institutions to help them comply with their capital requirements.
But its latest quarterly filing with regulators shows that the insurance behemoth still has significant exposure to those banks. A.I.G. listed the total notional value of these derivatives, credit-default swaps, as $109 billion at the end of March. That means if events in Europe turned sharply against A.I.G., its maximum possible loss on these derivatives would be $109 billion.
No one is suggesting that is likely.
Still, it would be a sore spot if A.I.G. once again had to make good on a European bank’s investment losses, even on a small scale. A spokesman for A.I.G., Mark Herr, declined to name the European banks that bought its swaps to shore up their capital.
A.I.G.’s stock has also fallen in recent days amid uncertainty over whether the continuing European debt crisis could set back an important, $35.5 billion asset sale. A.I.G.’s chief executive, Robert Benmosche, announced in March that the company would sell its big Asian life insurance business to Prudential of Britain, raising money to pay back part of its rescue loans.
The transaction needs the approval of 75 percent of Prudential’s shareholders.
Shares of A.I.G. fell seven consecutive trading days to close at $34.81 on Thursday. That was a drop of 23 percent since May 11. The shares recovered slightly on Friday, closing at $35.96.
A.I.G.’s swaps work something like bond insurance. The European banks that bought them could keep riskier assets on their books without running afoul of their capital requirements, because the insurer promised to make the banks whole if the assets soured. The contracts call for A.I.G.’s financial products unit to pay in cases of bankruptcy, payment shortfalls or asset write-downs.
A.I.G. is also required to post collateral to the European banks under certain circumstances, but the company said it could not forecast how much.
It was the collateral provisions of a separate portfolio of credit-default swaps that caused A.I.G.’s near collapse in September 2008. Those swaps were tied to complex assets whose values were hard to track.
The European bank assets now in question consist mostly of pooled corporate loans and residential mortgages. A.I.G. has said they are easier to evaluate and therefore less risky.
A.I.G. had hoped these swaps would become obsolete at the end of 2009, when European banking was to have completed its adoption of a detailed new set of capital adequacy rules, known as Basel II. Since A.I.G.’s swaps were designed to help banks comply with the more simplistic previous regime, the insurer thought they would serve no useful purpose after the changeover and could be terminated without incident.
But international bank regulators have yet to fully adopt Basel II. A.I.G.’s first-quarter report said “it remains to be seen” which capital adequacy rules would be used in different parts of Europe. Mr. Herr said A.I.G. could not comment beyond the information already filed with regulators. In its first-quarter report, the insurer said the banks were holding the loans and mortgages in blind pools, making it hard to know how they would weather Europe’s storm. Some pools have fallen below investment grade.
A.I.G. said the pools of loans and mortgages were not generally concentrated in any industry or country. They have an expected average maturity, over all, of a little less than two years. The company said it was getting regular reports on the blind pools and losses so far had been modest.
http://www.nytimes.com/2010/05/22/business/22aig.html?ref=business
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