Thursday, April 11, 2013

Prudential’s Thiam versus FSA



It is a cloudy day today and it reflects on the mood of everyone. We have had a terrible 48 hours with some of the worst losses for the year. The weather just ads to the sour mood and I am dragging myself from the conference room to my office in order to give our latest forex trades a closer look. The NZDUSD currency pair really bent us over today and stuck it to us.

We lost two-fifths of our most active trading account due to a big trade against the Kiwi, and now we need to start the long and slow process to recovery. My personal assistant enters my office and she can tell by the look on my face that it has been a rough day. She sits down on the big, comfortable couch next to me and hands me one of my favorite candy bars. I take it with a short ‘thanks’ directed at her which she reciprocates with a smile and nod.

I unwrap it and take a bit as she leans back on the couch. Thiam really did it is the statement she initiates our conversation with as I lean back on the couch as well. I know it may have been inappropriate, but I give her a kiss on the forehead. Thiam sure did. We refer to Prudential plc’s Chief Executive Officer Tidjane Thiam. He acted in the best interest of the company and all its shareholders as mandated by UK law and was punished for it by the FSA which gave him a public censure. This makes Thiam the only acting CEO of a FTSE 100 company to receive such a warning which stops shy of a fine or ban.

Back in February of 2010, February 12th to be exact, Thiam offered £14.5 Billion for AIA Group Limited, which would have been Prudential’s largest acquisition and funded by the largest share sale in UK history, and met with the Financial Service Authority or FSA, the UK regulator, the same day without mentioning the planned transaction to the socialist pricks. The FSA learned about it in the press, just like everyone else does. I applaud him for that.

Prudential was fine £30 Million and did not even receive the standard 20% discount for cooperating and paying the fine without contesting it. The FSA continues to be furiously angered. Unfortunately they believe that they need to be informed over confidential talks. Prudential, the UK’s largest insurer, did not mention the planned acquisition due to leak risks as well as the sensitive nature of the potential transaction.

Prudential eventually failed to acquire AIA and together with the FSA fine spend £407 Million on the entire ordeal. Since the deal collapsed AIA has risen almost 50% while Prudential surged in excess of 90% which means both parties ended up better thanks to the collapse deal. Thiam tried to fight FSA accusations as they were damaging to his reputation. He failed just as he failed to acquire AIA.

The FSA may have received their fine and tried to tarnish Thiam’s reputation without much success, but the ultimate winner was Prudential under the leadership of their CEO. It is time the rules will be adapted in order to ensure that London will remain the financial capital of the world. The FSA needs to be stripped of its powers and regulation needs to be overhauled in order to be more effective and much, much less.

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