AIG deal may be off: Prudential initially agreed to pay $35.5 billion for AIA, the Asian insurance business of AIG, but the deal has gone sour. Faced with shareholder opposition and regulatory questions, Prudential has lowered its bid to $23 billion cash, $5.375 billion of shares in the combined companies and $2 billion in notes, for a total offer of $30.375 billion. It’s a blow to AIG, which received more than $180 billion from the U.S. government, and was looking to get $51 billion from the Prudential deal and the sale of its American Life Insurance division to MetLife. AIG said Tuesday it wouldn’t accept lower offer. In a statement, AIG said, “the company will adhere to the original terms of its previously announced agreement with Prudential PLC for Prudential to acquire AIG’s wholly owned pan-Asian life insurance subsidiary AIA Group Limited. The company will not consider revisions to those terms.” It is not immediately clear what role the U.S. government may have had in this decision. (more)
Will AIG pay back its bailout? It depends on whom you listen to. During Wednesday’s hearing at the Congressional Oversight Panel for the Troubled Asset Relief Program, the government folks and AIG’s chief executive spent most of their time discussing why the AIG bailout was warranted and how things are getting better. They suggested that AIG may be able to pay off some debts, thanks to the sale of two foreign life insurance subsidiaries, by the end of the year. The managing director of insurance ratings at Standard & Poor’s suggested that the agency may lower the already-low rating of AIG if its operating performance does not improve. The managing director of property and casualty insurance research at Keefe, Bruyette & Woods noted that the company recently downgraded common shares of AIG to underperform and established a price target of $6 — despite yesterday’s closing market price of $34 for AIG. If that weren’t bad enough, 20 percent of Prudential UK shareholders announced that they plan to vote against the $35.5 billion takeover of AIG’s life insurance subsidiary. (more)
Investor confidence down: The Wall Street Journal reports that confidence among institutional investors has suffered its largest one-month drop since the collapse of Lehman Brothers, with uncertainty over of the U.K. election, the “flash crash” in the U.S. and high levels of market volatility combining to make investors more risk averse. The State Street Investor Confidence Index for May reports global investor confidence fell 11.2 points to 88.2, or about 10 percent. Declines in investing sentiment in North America were a key contributor, with institutional investor confidence falling among European investors, too. Investing patterns by institutional investors in Asia, by contrast, showed confidence was robust, rising about 7 percent. But these Asian investors were selective, favoring commodity-producing countries and avoiding Europe and the U.S. (more)
More short bans? The Financial Times reports that European politicians have proposed a complete ban on naked short selling, significantly widening the German ban last week on naked short-selling of European government bonds, credit default swaps and some stocks. Last week, the European Parliament’s Economic and Monetary Affairs Committee proposed a total ban on naked short selling – the process of selling a financial instrument that is neither owned nor borrowed by the vendor. The move is not supported by all European regulators; last year the UK’s FSA said that naked short selling provides some “legitimate behaviour which can provide beneficial market impacts.” This could lead to confrontation in European markets as Germany did not signal its ban to the markets and refused to back down when other E.U. members protested the ban. Business reaction has been stronger. The chief currency strategist at BNP Paribas reportedly said: “As a German citizen, I wish to apologise for the stupidity of my government.” (more)
Federal prosecutors will not bring criminal charges against current and former American International Group Inc. executives for their role surrounding financial contracts that nearly brought down the insurer about two years ago, according to people familiar with the matter. (more)
Euro rescue stumbles: The euro has given back all of Monday’s gains and the benchmark gauge for European shares is down after registering its largest gain in 17 months. Some analysts question the decision to solve a debt crisis by issuing more debt; others are concerned the existence of the rescue fund creates a moral hazard, weakening the incentive for countries to maintain fiscal discipline. Stocks fell Tuesday in Europe and Asia, and U.S. markets closed down slightly. To make matters worse, an internal IMF assessment paints a gloomy picture of Greece’s ability to recover economically, with years of high unemployment, slow growth and political bickering threatening to undermine a recently approved international rescue program. (more)
General Motors’ willingness to publicly display their penchant for image over sound business practices should surprise no one. This is, after all, a company who was cozy enough with the White House to avoid bankruptcy by performing their part in the play perfectly: as the embattled company saved and redeemed by government bailout. (more)
General Motors’ false advertising that it has paid back its bailout money “in full” has prompted harsh criticism. Yesterday, Competitive Enterprise Institute Attorneys Hans Bader and Sam Kazman filed a complaint asking the Federal Trade Commission to investigate these claims, noting “GM has only repaid a fraction of those funds—barely ten percent, and “moreover, GM apparently repaid its loan by using other federal funds [emphasis in original]” (more)
The first amendment: An amendment offered by Senate Banking Committee Chairman Chris Dodd, Connecticut Democrat, and Ranking Member Richard Shelby, Alabama Republican, to the Restoring American Financial Stability Act (S. 3217) was adopted Wednesday by a vote of 93 to 5. According to Congressional Quarterly, the amendment drops the proposed $50 billion resolution fund that would have covered the costs of a major financial collapse, and empowers the Federal Deposit Insurance Corporation (FDIC) to liquidate large firms with a credit line from Treasury. The amendment requires congressional approval before the government could guarantee the debt of a financial firm. (more)
Fiduciary duty: A Senate Judiciary Committee panel reportedly will hold hearings suggesting that investment firms and broker-dealers should have a fiduciary duty in their interactions with clients — meaning that companies would have to look out for clients’ “best interests.” Under present law, such companies only have to determine whether particular investments are “suitable” for the buyer. The extent and details of such duties are unclear to many in Congress. Most of the fireworks at the 11-hour Senate grilling of Goldman last week revolved around senators’ disbelief that Goldman could sell an investment while taking a counter-position in the firm’s own investments. The irony is thick, then, as the Wall Street Journal reported Tuesday that some members of Congress used their own money to make risky bets that U.S. stocks or bonds would fall during the financial crisis. (more)
In 1901, 40 percent of a consumer’s income was spent on food consumed at home. By 2001, that number had dropped dramatically to 7.8 percent. As a result of the low cost of food, more of a family’s income can be spent on housing, transportation and health care. In this economic climate, when many families are affected by unemployment, the consistent low cost of food is more important than ever in order to stretch each dollar as far as possible. While it may not be apparent at the supermarket, complex financial products called derivatives play an essential role in avoiding significant price spikes in your groceries. Unfortunately, new regulations being considered in Congress may threaten the ability of businesses to utilize these products to help consumers. (more)
The Treasury Department, under fire for supporting General Motors’ claim that the company was paying off its government bailout with that same bailout money, is trying to set the record straight. (more)
Somebody spilled the beans Tuesday, telling the truth about the financial reform bill being debated in Congress. But most media ignored it. (more)
In a sign that a bipartisan deal is much farther away from being reached than had been thought, Senate Republicans said Monday they will likely offer an alternative comprehensive bill on financial regulatory reform if they defeat Democrats’ attempts Monday to move forward on debate with the bill as it is currently written. (more)
If the Senate bill passes, what’s next? – The Senate will vote today on its first steps toward passing a financial reform bill. Any financial reform bill that passes the Senate still needs to be reconciled with the House bill. Bloomberg reports two major — but manageable — differences between the House and Senate version. The Senate bill includes a plan to study how to implement Obama’s “Volcker Rule” banning proprietary trading by banks, named after former Fed Chairman Paul Volcker, who’s advising the president. The administration came up with the Volcker rule after the House had passed its bill. The Senate bill permits such a ban when the Fed finds a threat to the safety and soundness of the company or to national financial stability. Both bills propose a Consumer Financial Protection Agency; the Senate bill has the consumer protection bureau at the Fed, and the House bill proposes a standalone agency. (more)
The man who takes Sachs of gold is the man who makes the rules. President Obama is that man, and Republicans in Congress should demand an independent special prosecutor to investigate the relationship between gold and rulemaking in the executive branch. With nearly a million dollars of Goldman Sachs money in his hip pocket (rendering that institution his most generous ’08 corporate campaign contributor), Obama appears to be ignoring some serious rule-breaking. (more)
After months of emphasizing the need to coordinate a global regulatory response to the global financial crisis, the Administration has done an about-face. Instead of working in concert with international partners, the Administration now wants to enact reform unilaterally so as to “set the global agenda.” The supposed first-mover advantage would allow the U.S. to shape “a level playing field on terms that play to our strengths.” In reality, regulatory reform at the national level is unlikely to work because of the size and breadth of the institutions. And rather than stimulate international cooperation, unilateral action is likely to result in regulatory competition that ultimately disadvantages U.S. firms. (more)
With the president’s signature on the health care bill Tuesday, roughly 50 percent of the U.S. economy has fallen under the purview of the federal government. (more)
WASHINGTON – The administration’s pay czar said Tuesday that the top 25 earners at five companies still receiving extraordinary aid from the government’s bailout fund will be paid an average 15 percent less in 2010 than in 2009 under his restrictions. (more)
Sign up for free Daily Caller News Emails