Sterling Hits 10 - Month Low vs Dollar

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LONDON (Reuters) -Sterling sank to a 10-month low against the dollar on Monday and looked set to post its biggest one-day drop in more than a year after polls showed a growing chance that an upcoming general election may result in a hung parliament.

Having broken through the key $1.50 level, the pound at one point dropped roughly 3 percent on the day, with traders citing selling by a UK bank after AIG said it would sell its Asian life insurance business to insurer Prudential Plc.

Market participants also used weaker-than-expected data on mortgage approvals as another reason to knock the pound to a three-month low against the euro, leaving it at an 11-month trough versus a currency basket.

Analysts said negative sterling sentiment snowballed in London trade, leading to frantic selling in the currency after it broke through key technical levels against the dollar.

"Sentiment on sterling is very bad at the moment. Given half a chance, people will just sell it," said Paul Robinson, chief sterling strategist at Barclays Capital in London.

"Election uncertainty is going to persist, I don't think the MPC is suddenly going to change its tune (on the possibility of resuming quantitative easing) ... I can't see anything changing sterling's prospects in the short run."

By 12:29 p.m. British time, the pound traded 2.4 percent lower on the day at $1.4885. Having tumbled as low as $1.4781, the pound looked to be heading for its biggest one-day percentage loss since February 2009.

"At these levels, sterling's clearly oversold," said Geoffrey Yu, currency strategist at UBS in London. "I'd say $1.45 is the limit (to short-term sterling weakness)."

Technical analysts said selling picked up after the pound made a decisive break of key support around $1.5270 late last week, around the 50 percent Fibonacci retracement of 2009 rally.

In a matter of seconds, the pound dropped roughly 2 cents, taking it below its 61.8 percent retracement level around $1.4855, which some analysts said may open the door to more losses.

The euro rallied around 2 percent to 91.50 pence, its highest since early December, and was poised to clock its best daily percentage gain since late October 2009.

Analysts said they expected sterling to stay under selling pressure against the euro, while acknowledging that gains in the euro may be limited by the single currency's weakness against the dollar due to ongoing concerns about Greece's debt problems.

Broad losses pushed sterling down to 76.5 against a currency basket, its lowest since October last year.

Sterling hit a one-year low against the yen of 132.07 yen, while it plumbed its weakest in 25 years against the high-yielding Australian dollar.

PRUDENTIAL DEAL

Analysts said the biggest drag on sterling was a Sunday Times/YouGov poll showing the ruling Labour party may win more seats in parliament even if the opposition Conservatives win more of the popular vote.

Expectations are high that a general election due by mid-year may result in a hung parliament, which would make it difficult for the ruling party to pass unpopular plans to cut the deficit, which would be negative for sterling.

AIG said it would sell AIA to Prudential for $35.5 billion (24 billion pounds) dollars. The announcement sparked sterling selling on speculation that the insurer may have sell pounds for dollars as part of the sale.

Traders also dumped the pound after data showed a dip in mortgage approvals in January, even as mortgage lending and consumer credit rose.

Market participants also brushed off a reading of manufacturing PMI which showed the manufacturing sector expanded faster than expected last month.

Sterling continued its slide despite an upward revision to UK economic growth last week as concerns simmer about a tepid economic recovery, high public debt and political uncertainty.

Sentiment has also deteriorated in the last week after the Bank of England said it stood ready to return to its asset-buying scheme if economic conditions warranted.

This has prompted speculators to dump the pound, with positioning figures late last week showing another hefty rise in bets that sterling will depreciate.

Source: http://www.nytimes.com/reuters/2010/03/01/business/business-uk-markets-sterling-midsession.html

Prudential to Buy A.I.G. Unit for $35.5 Billion

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Prudential P.L.C. of Britain said Monday that it had agreed to buy American International Group’s big life insurance business in Asia in a deal valued at $35.5 billion.

The sale of American International Assurance, which is based in Hong Kong and is commonly known as A.I.A., would lead to the biggest repayment yet toward the more than $180 billion that the U.S. government has invested in A.I.G. as part of a huge bailout. The Federal Reserve Bank of New York, which holds preferred shares in A.I.A., would receive the first $16 billion in proceeds from a sale, Chris V. Nicholson and Andrew Ross Sorkin report in The New York Times.

With a takeover of A.I.A., Prudential would become the indisputable leader in the Asian life insurance sector. Prudential said the combined group would be the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines and the leading foreign life insurance business in China and India.

A 162-year-old company — which is not related to Prudential Financial in the United States — the British Prudential already draws a majority of its revenue from Asia, with more than 11 million policyholders in 13 markets.

“We are combining the two strongest international life insurers in Asia,’’ Tidjane Thiam, chief executive of Prudential, said in a conference call Monday to announce the deal.

Acquiring A.I.A. accelerates a strategy outlined by Mr. Thiam to sharply increase the firm’s revenue in Asia. The region is considered one of the fastest-growing markets for life insurance thanks to a culture of saving and increasing affluence in many countries.

“Transformational is an overused word,” Mr. Thiam said, “but this deal is transformational.” He noted that in 2008, 44 percent of new profit for Prudential came from Asia; if A.I.A. and Prudential had combined in 2009, that figure would be 60 percent. That geography, he said, promises “sustainable growth for years to come.”

Prudential said that the new company would assume the name Prudential, be headquartered and incorporated in Britain, and be traded on the London Stock Exchange with American Depository Receipts traded on the New York Stock Exchange.

That said, the A.I.A. brand is not set to disappear.

“We like good brands and we tend not to kill them unnecessarily,” Mr. Thiam said.

In a separate statement, Mr. Benmosche said both companies were “committed to preserving the A.I.A. brand and the unique strengths of each of our sales forces, which is key to capitalizing on A.I.A.’s long term potential.”

Once the deal is complete, the company said, it intends ‘‘in due course’’ to seek a dual primary-listing on the Hong Kong Stock Exchange.

‘‘This transaction offers the opportunity to bring together two leading companies, positioning the combined group to capture the future growth opportunity in Asia,’’ Prudential said.

Under the terms of the deal, Prudential would pay about $25 billion in cash and about $10.5 billion in a combination of stock, preferred shares and convertible preferred shares. The company said it would obtain the cash for the deal through a $20 billion rights issue and $5 billion in senior debt.

The rights issue must be approved by shareholders, and the deal faces other regulatory approvals. Prudential said it anticipated that the rights issue would take place in May and that the transaction would close in the third quarter.

Several analysts downgraded Prudential shares on Monday.

‘‘It’s going to be enormously dilutive,’’ ING analyst Kevin Ryan told Reuters, speaking of the rights issue. ‘‘No one knows exactly what A.I.A. contains or how profitable it is, or how it overlaps with Pru’s existing businesses.’’

Prudential first approached A.I.G. last year, but it was rebuffed because its offer was too low, according to people briefed on the matter. Mr. Thiam said that the price was raised because A.I.G. had prepared its Asia unit for an initial public offering, which meant greater transparency, and that the deal announced Monday included its Philippine assets, which was not the case before.

A.I.A., founded in 1919 and one of A.I.G.’s oldest divisions, is widely considered one of the top businesses within A.I.G. The division has about 20 million policyholders throughout Asia, served by 23,000 employees and 300,000 agents. It has customers in Australia, Brunei, China, Hong Kong, India, Indonesia, Macao, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

According to Prudential, A.I.A. had an operating profit of $1.438 billion after tax in the financial year ending Nov. 30, 2009, based to unaudited figures.

A.I.G. had been preparing an initial public offering of the division, lining up banks to oversee what would have been among the largest listings this year. Analysts had estimated that an I.P.O. could raise as much as $20 billion, depending on the size of the stake sold. It has now abandoned that plan.

‘‘In considering two viable, very attractive alternatives to successfully monetize A.I.A., including an initial public offering, we decided that a sale to Prudential enables A.I.G. to realize value on a faster track to repay U.S. taxpayers,’’ Robert Benmosche, A.I.G.’s chief executive, said Monday. ‘‘This transaction, the most significant milestone to date in our ongoing effort to repay taxpayers, also gives us greater flexibility to move forward with A.I.G.’s restructuring and focus on enhancing the value of our key insurance businesses, which will benefit all stakeholders. ’’

A sale to Prudential would have more certainty than a huge I.P.O. amid falling equity prices and jittery market sentiment, which helped draw the support of U.S. government officials for a deal.

‘‘The Hong Kong market has shown that there is good support for big international listings, so I don’t think that a possible decision to sell rather than list is due to the market environment,’’ said Francis Lun, general manager at Fulbright Securities in Hong Kong.

But a sale would be ‘‘timesaving and much less complicated,’’ Mr. Lun said. Rather than take the risk that markets might turn sour during the months of preparations for an I.P.O., he said, ‘‘they would prefer to have a sure thing.’’

Before the financial crisis of 2008, A.I.G. was the world’s largest insurer, owning a diverse array of services across the globe assembled largely by its longtime chief executive, Maurice R. Greenberg. Since its rescue by the U.S. government, however, the company has sought to sell off businesses to help repay its bailout funds.

Mr. Benmosche has outlined a future for the company in which it would focus on selling property and casualty insurance worldwide, under a unit rebranded Chartis, and life insurance only in the United States.

Soon after arriving at A.I.G. in August, Mr. Benmosche slowed the company’s sales campaigns, instead seeking to fetch higher prices for the businesses it hopes to sell.

Beyond the sale of A.I.A., the insurer is also trying to sell another life insurance unit, the American Life Insurance Company, to MetLife for about $15 billion, according to people briefed on the matter.

Those negotiations have been stymied over a tax issue that requires resolution from the Internal Revenue Service, these people said, though they still expected to reach a deal. The company is also seeking to sell other units, including an aircraft-leasing business.

For Prudential, the purchase of A.I.A. represents such a significant shift that some analysts had wondered it if would look to sell its British business. In response to a question about that Monday, Mr. Thiam said, ‘‘the U.K. generates cash and capital for us, and it’s an important part of the group.’’

‘‘We are very British in identity, even if my accent is not,’’ said Mr. Thiam, who was born in Ivory Coast.

Chris V. Nicholson reported from Paris. Bettina Wassener contributed reporting from Hong Kong and Michael J. de la Merced from New York.

Source:http://dealbook.blogs.nytimes.com/2010/03/01/prudential-agrees-to-buy-a-i-g-s-asia-unit-for-35-5-billion/