Notes From Underground: an update to Notes’s March 1 piece

In a developing story, it appears the U.K.’s PRUDENTIAL PLC is trying to renegotiate its previous deal for AIG’s Asian insurance unit,AIA. We originally thought that PRU was paying a rediculous amount for the AIA unit, especially since they were using an already badly depreciated currency: the POUND. We only point to the story as being an influence on the POUND. If the deal fails to consummate, previous short STERLING positions, which were put in place to fund the deal, will have to be unwound. This will have an impact on the U.K. currency, both outright and on several crosses. We just want our readers to be aware of the implications of this potentially ill fated deal.From March 2, 2010:

The biggest financial story over the weekend was that AIG is planning to sell its Asian insurance unit to Prudential of the U.K.for $35 billion. This has led to weakness in the British pound as the market is anticipating the buying of dollars to do the deal. This transaction bothers us for several reasons. First, the U.K. insurer is using a weak currency to do the transaction. Where are the potential buyers who could use a strong currency and therefore pick up better value?

Secondly, why did the Chinese not try to make this deal as they have a long history of involvement with AIG? The insurance conglomerate has had a long presence in China–AIG was established in Shanghai in 1923. By buying AIG’s Asian operation, China could have put their massive DOLLAR stockpile too good use. Lastly, when a company is selling off its best businesses to finance its mere existence, we begin to wonder what their strategy is going forward. The huge wealth held in sovereign wealth funds makes us question why the SWFs are hoarding rather than spending.

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3 Responses to “Notes From Underground: an update to Notes’s March 1 piece”

  1. Fred E. Says:

    Hoarding and not investing by SWF due to evaluation that we are heading for the whirlwind, which will destroy values.

  2. yra Says:

    that was an old comment but i agree with you and it still holds–but if you managed a sovereign wealthe fund where would you be going

  3. Arthur Global Practice Says:

    Sovereign wealth funds are a little bit trickier… global infrastructure: ports, electricity, toll roads, and so on?

    Thank you so much.

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