Fresh from its latest heart-warming ad campaign AIG is probably considering how to put together its next one, which our non-existent sources suggest will showcase Robert Benmosche, its chief executive, both having a cake and eating it too.
The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show.
Should insurers use the history of Greek bond prices as a benchmark for holding capital against holdings of sovereign debt?
You might well ask. Read more
Behold — what could be the largest natural catastrophe bond ever:
That’s S&P’s ratings doc for Everglades Re Ltd. It’s a bond to transfer some of the hurricane risk that a state-backed Florida insurer will face from writing policies for coastal homeowners. Losses from a Hurricane Andrew-level storm would wipe out the principal, according to modelling in the ratings doc. Read more
Bank of England: Hey, FSA guys, don’t mean to tell how to do your job, but pssst! look at “collateral swaps” ok?
FSA: Collateral swaps? Do you mean “liquidity swaps”? We don’t think even Dodd-Frank looks at those..
Bank of England: Look at them anyway. We’ll be your overlords direct colleagues soon, so get on with it.
[several months pass]
FSA: We blocked some!! We blocked some!!
Alright, it probably didn’t go down like that, but FT Alphaville enjoys pretending it did. Read more
Banks and insurers have hit back at the UK regulator’s moves to block a new form of funding transaction between banks and insurers, the FT reports. The British Bankers’ Association criticised the approach of the Financial Services Authority to the deals as “completely inappropriate”. Phoenix Group and Lloyds Banking Group have each had transactions blocked, the FT says, citing people in the market. They are among about half a dozen deals that have been held up while the FSA considered these so-called liquidity swaps and launched a consultation on specific guidance for them. Liquidity swaps are designed to help hard-pressed lenders improve their funding base and the quality of assets on their balance sheets as they look to wean themselves off the liquidity support created by central banks during the crisis.
US regulators will examine non-bank financial groups with more than $50bn in assets to decide whether they are dangerous enough to merit tougher supervision and higher capital requirements – a threshold that will be a relief to most hedge funds and private equity firms, the FT says. The Federal Reserve, Treasury and other regulators on the Financial Stability Oversight Council voted on Tuesday for criteria to designate companies as “systemically important”, a category that the industry has been lobbying hard to escape because of the potential hit to profits. Hedge funds typically fall below the $50bn threshold, as do private equity firms such as KKR and Blackstone. But in the insurance industry, institutions from Prudential Financial to Allstate exceed the threshold. Non-banks with more than $50bn in assets then have to fall foul of one out of a list of metrics to be designated, according to the proposed rule.
Sweeping regulatory changes proposed for banks and insurance companies could increase borrowing costs for European companies by up to €50bn ($68bn) annually when new rules come fully into effect, according to estimates by Standard & Poor’s. The FT reports Basel III and Solvency II, the proposed new regulatory regimes for global banks and European Union insurers respectively, could change the capital reserves that financial institutions must hold against equity, corporate loans and bonds of varying safety and duration. The revamped rules, if implemented in their proposed form, favour shorter-dated bonds and loans, and increase the reserve requirements for less highly rated companies. S&P argues that European companies will feel the overall effects “more harshly than their US counterparts because they typically rely more heavily on banks for funding relative to capital market sources”. Cost estimates for the new rules vary considerably. Regulators argue that they will favour borrowers overall, while banking lobbying groups say the regulatory changes will have a much harsher effect.
Solvency II (insurers) and Basel III (banks).
Both add fresh minimum capital requirements to their respective industries. Similarities generally stop there. The very definition of capital is different, so are risk-weighting and accounting regimes… Read more
It’s an answer — of sorts — to the $2,200bn dollar question. Read more
Speculation that Japanese insurers will have to sell foreign assets like US Treasuries to meet earthquake damage claims is not gaining traction at home, the FT says. Market participants in Tokyo say insurers have plenty of cash reserves to meet claims, and that liabilities of life insurers would be limited by Japan’s earthquake reinsurance scheme. See also FT Alphaville on Mrs Watanabe, repatriation and a global market dislocation.
Supply chain specialists at companies around the world are struggling to assess the extent of the disruption to their manufacturing capability amid chaos in Japan following last Friday’s earthquake, the FT says. While few large businesses are admitting to any serious problems, many are examining contingency plans that could help to keep their factories around the world stocked with parts in the event that supply chains become badly affected in the next few weeks. The WSJ says insurers could be on the hook for some of the lost profits at manufacturers whose supply chains are disrupted.
Here’s a useful breakdown of who pays for what after Japan’s massive earthquake:
Which might help explain (some) of why Japanese government bonds are sliding on Wednesday. Japanese insurers could well be selling some of their bonds to help cover losses in their stock portfolios, just as the outlook for Japan’s finances might worsen. Read more
“This isn’t a flight to quality, it’s a flight from disaster.“ [Via Bloomberg]
That, from Colin Embree from Bank of Nova Scotia Asia, sums up movements on Tuesday morning. Read more
This is not your typical Japanese government bond post.
After Friday’s almighty earthquake, Japanese government bond futures rallied (the cash market was closed immediately after the event), reportedly on safe haven demand. But there’s still plenty of JGB bearishness around too — with worries that new liquidity measures and the cost of rebuilding could eat into Japan’s finances. Read more
Recent exchange action between the Japanese yen and the US dollar:
Fresh from Standard & Poor’s — news that Friday’s whopping Japan earthquake won’t impact six natural catastrophe bonds exposed to, erm, Japan earthquake risk:
AIG has offered $15.7bn in cash to buy back a portfolio of mortgage-backed securities from the Federal Reserve in a deal that could hand the government a profit on a key component of the insurer’s bail-out, reports the FT. In a regulatory filing, AIG said on Thursday that it was offering to buy the assets of Maiden Lane II, a vehicle housing impaired RMBS, in a deal that would produce a $1.5bn profit for the New York Fed. AIG would in turn reduce its obligations to the government by about $13bn, to $26bn. The deal involves buying about 800 securities, which are backed by mostly subprime mortgages, at roughly 50 cents on the dollar.
How many years has Japan been preparing for the ‘big one’?
On Friday it hit — the 8.9 magnitude quake that hit off the coast of north-eastern Japan is the seventh-largest on record, and far outstrips the 1995 temblor in Kobe. Read more
Aviva posted a 35 per cent increase in annual profit on Thursday and announced that it had eliminated the vast majority of its pension deficit, the FT reports. The London-based insurer also played down the likely impact of a controversial European court ruling earlier this week on gender equality in the pricing of insurance. Aviva posted a pre-tax profit of £2.44bn for 2010, up from £1.81bn a year earlier. Operating profit rose 26 per cent to £2.55bn, beating the £2.45bn analyst consensus forecast compiled by the company. The profit increase came in spite of the snow and ice in the run-up to Christmas, which meant that annual weather-related costs were £40m more than normal in its UK arm, and €80m higher in its other European operations. Strikingly, the group said it had cut the funding deficit in its final salary pension scheme from £1.7bn to £3m over the course of the year.
American International Group expects to close a major agreement with the government on Friday regarding the launch of a ‘re-IPO’ that will release it from federal ownership imposed during its 2008 bailout, the WSJ reports. AIG is preparing to pay down and terminate a $21bn credit reserve facility and issue warrants to private shareholders this week, ahead of converting preferred shares held by the Treasury into common stock. The move will create a $3.6bn charge for AIG this quarter. The insurer has also finalised the $2.16bn sale of a key Taiwanese asset ahead of Friday’s recapitalisation, the FT says. On Thursday the government will interview banks hoping to underwrite an expected $10bn secondary stock offering due in May, Reuters reports.
We don’t quite understand why the bond market seems so weirdly blasé over what the ECB has (not) revealed on its sovereign debt strategy.
On the one hand, we give the ECB points for the market signal it sent via buying Irish and Portuguese bonds even as President Trichet was saying that the Securities Markets Programme would be ‘ongoing’. That’s a good reminder of the old adage about trying to fight central banks. Read more
Late on Wednesday, S&P cut Ireland’s credit rating from AA- to A. On Thursday, they started poking around Ireland-based insurers, placing negative watches on several companies in common with the sovereign’s outlook.
There’s a sovereign ceiling to their ratings, basically. And the ceiling is starting to fall in. On the other hand there’s something else which is concerning here. Read more
Shares in American International Group’s former Asian unit have surged 17 per cent on their first day of trading in Hong Kong, Reuters reports. AIA now bears a market value above $35.5bn, the initial offer made for it earlier in the year by UK insurer Prudential, in a deal that eventually collapsed. The robust debut will come as a boost for AIG, which remains AIA’s biggest shareholder, as it seeks to repay the government following its bailout during the financial crisis, the FT says. The ease with which AIA has completed Hong Kong’s biggest share sale – surpassing the mega-listings of Agricultural Bank of China earlier this year and ICBC in 2006 – highlights the strength of investor demand for Asian equities, the paper adds.
American International Group has announced that chairman Steve Miller would step in as the insurer’s interim chief if needed, following the revelation that chief executive Robert Benmosche is fighting cancer, reports the FT. While Benmosche has said he will continue to carry out his role, the move underscores why AIG needs to have a full succession plan ahead of his already planned exit in 2012, NYT Dealbook says. The insurer added in its statement that it would look for both internal and external candidates for when the CEO role becomes available in two years’ time.
American International Group has disclosed that its chief executive Robert Benmosche has cancer and is undergoing aggressive chemotherapy after an unclear prognosis, Reuters reports. The news is a blow to the insurer, just as it makes progress on paying back taxpayers for its 2008 bailout, including the recent sell-off of its Asian unit AIA. Four chief executives have served at AIG since mid-2008. AIG’s board is still in the early stages of succession planning, says the FT, which notes that more than $35bn of Asian assets are still to be sold or listed on AIG’s way to ending government control.
AIA, the Asian life insurance unit of AIG, has raised $17.85bn in the largest initial public offering ever completed in Hong Kong, sources have told the FT. The deal values AIA at $30.5bn, which will make the company the world’s seventh biggest insurer by market cap. The deal is a milestone for AIG’s efforts to pay off its taxpayer bailout too. Having already allotted extra shares on top of its original plan, AIA is in a position to offer even more after shares start trading, which may take the amount raised to over $20bn, according to the WSJ.
There was a nifty little Morgan Stanley note recently which took on all that ‘stocks are dead, long live bonds’ investor sentiment.
Nifty, because the bank did note short-term support for a return to equities (buybacks, bond bubble bursts) but remained cautious on long-term trends, further into the decade. Read more