from Anurag Kotoky:
Willis – Just say no to contingents
The return of contingent commissions to the insurance brokerage business has provided one company with an opening to differentiate itself – by not accepting them.
Insurance brokers are middlemen between insurance companies and insurance buyers. They’re supposed to act in the interest of the buyer, but they can receive “contingent” commissions by steering a certain amount of business to the companies.
The practice was banned five years ago after an assault led by Eliot Spitzer, riding high at the time as New York’s attorney general and the “sheriff of Wall Street.”
But now the practice has returned from the dead, and two top players – Aon and Marsh & McLennan – are taking steps to return to it.
That gives another company, Willis, an opening to differentiate itself by advertising that it refuses to sully itself with such a conflict of interest. As other companies made clear that they were moving back to accepting the payments, Willis fired off a press release blasting the practice.
"Clients` best interests are served when their brokers work for them, and only them, with standards of service based on ethics and integrity, not merely on what`s legally permissible, Willis said.
Willis even has a website, www.clientsbeforecontingents.com, that promises “to give you a voice and a platform to take a stand against contingent commissions.”
DealZone Daily
British insurer Prudential is to list in Hong Kong on May 11 and announced a secondary listing in Singapore to fund its $35.5 billion takeover of rival AIA, AIG’s Asian life insurance business. Prudential said it would publish prospectuses for each of the listings on May 5.
U.S. air carriers United Airlines and Continental are considering a nil premium all stock merger to create the world’s largest airline valued at about $6.6 billion. US Airways earlier dropped out of merger discussions with United. Many believed United had only entered talks with US Airways to draw out Continental, arguably a better match for it.
CenturyTel is to buy Qwest Communications in another stock deal, valuing the combination of the U.S.’s third and fourth largest landline telephone companies at $10.6 billion. The deal is designed to let the new business, CenturyLink, cut costs and compete more effectively, as consumers increasingly unplug their phone lines and go mobile.
For other Reuters deals news, click here.
In other media:
American clothing group North Face has take a 5 percent stake in Blacks Leisure, a move that could prevent Mike Ashley’s Sports Direct mounting another bid for the outdoor clothing retailer, the Telegraph reports.
Private equity firm Bridgepoint is in exclusive talks to buy arts and crafts retailer Hobbycraft for more than 100 million pounds the FT reports, seeing off interest from rivals Blackstone and Exponent and car parts and cycle retailer Halfords.
DealZone Daily
Prudential says it has appointed Rob Devey, head of the UK insurer’s British and European operations, to lead the integration with AIG’s Asian life insurance arm. Read the Reuters story here.
And in news reported by other media on Wednesday:
Morgan Stanley has told investors that its $8.8 billion real estate fund may lose nearly two-thirds of its money due to bad investments, according to the Wall Street Journal, which reviewed fund documents.
US specialty chemicals maker Lubrizol has joined a string of other bidders in talks to buy Cognis, with an offer that could value the German maker of additives for cosmetics and detergents at about $4.1 billion, the Financial Times said.
DealZone Daily
American International Group could learn the fate of the stalled $2.2 billion sale of its Taiwan unit Nan Shan Life Insurance as early as Thursday, when Taiwan’s parliament will review a report on the deal from the top financial regulator. Read the Reuters story here.
A clutch of private equity firms have bid up to 400 million pounds for British greetings card retailer Card Factory, sources familiar with the process told Reuters. Here is the story.
And in news reported by other media on Wednesday:
Barclays is looking to buy a retail bank in the US to extend its presence after buying Lehman Brothers, reports the Wall Street Journal. Barclays is not in talks and no deals are imminent, but has designated an internal team to assess possible targets.
Brazilian iron ore miner Ferrous Resources has revived plans for a $3 billion to $4 billion initial public offering in London, according to the Financial Times. The company could come to market as early as May and the Board will meet on Friday to start deciding whether to proceed with an IPO this summer.
DealZone Daily
Sberbank, Russia’s biggest lender, is lining up a bid for the 21 percent stake in Turkey’s Garanti Bank that is being sold by General Electric, a source close to the deal tells Reuters. The stake in the most actively traded stock on the Istanbul bourse is worth $3.7 billion at current market prices. Read the story here.
And in news from other media on Tuesday:
Marsh & McLennan, the number two global insurance broker, has put its security consulting business Kroll up for sale for $1.3 billion, the Financial Times said. Carlyle, Apax, BC Partners, General Electric and two trade bidders made first expressions of interest in late February, the report says.
Prudential shareholders have been given assurances they will share in the lucrative underwriting of the insurer’s record $21 billion rights issue to head of a brewing row between investors and the company, the Telegraph said, citing sources close to the company.
DealZone Daily
Swiss commodity trader Glencore buys back its prized Prodeco coal operations in Colombia from mining group Xstrata. Analysts reckon the deal is worth around $2.5 billion to $2.7 billion — making it an easy decision for Glencore to exercise its option to buy as it values the mines at $4-$5 billion, a source says.
China Life Insurance Co, the world’s biggest life insurer by market value, is looking to buy a bank, its chairman says. It would be following peers as China relaxes restrictions on banks and insurance companies investing in each other.
In other M&A and corporate finance news reported by Reuters and other media on Friday:
Brookfield Asset Management is looking at a $3.6 billion listing of its Australian office portfolio to take advantage of improving tenancy levels, the Australian Financial Review says.
British fund firm Jupiter Asset Management is renegotiating its loans with investors, ahead of a possible listing, the Financial Times reports.
Vivendi, Europe’s largest entertainment group, is scouting for opportunities to invest in Brazil’s mobile phone market, the FT says.
Noted: Will European insurers hit M&A trail?
Analysts at UBS are predicting the European insurance industry could be at the start of a new wave of mergers and acquisitions (M&A) as companies look to counter falling demand for insurance by taking over rivals to boost top-line growth and extract cost synergies. Bank rescues have created a number of potential targets as well.
The team, led by Marc Thiele, says:
“We believe European large-cap insurers will look for M&A in Eastern Europe and Asia…In our opinion, this would be more attractive than acquiring cash-generative businesses in mature countries; while this tends to offer greater cost-savings potential, it also offers less premium growth.
“On top of the normal M&A considerations, there are a number of additional game-changing transactions possible following the decisions involving ING and RBS to exit the insurance business in agreement with the European Commission.
“The planned sale of its emerging market units should help ING generate proceeds to repay liabilities and provide flexibility for the disposal (in whatever form) of its mature units. We expect Munich Re and Zurich Financial to use their balance sheet to improve their growth profile, leading to M&A deal risk. “
Noted: Financial M&A drivers for 2010
Across the different bits of financial services – such as fund management, broker-dealers, insurance, and trading systems – mergers and acquisitions fell sharply in 2009. But Freeman & Co outlines 10 drivers that should make this a busier year for dealmaking:
“1. Banks and insurance companies continue to assess whether their asset management units are core to their business, especially those that have stand alone brands or are in non-core markets
2. Large transformational asset management deals will diminish, but deals in the $3-30 billion AUM range will increase from current lows
3. Broker-dealer consolidation will continue in 2010 as firms look for combined efficiencies as well as revenue and income growth opportunities in a tough operating environment
4. Sub-scale alternative trading systems and dark pools will be consolidated by their larger competitors or rolled up into exchange-backed or bank-backed platforms
5. Organized exchanges will re-start their M&A activities, setting their sights on emerging market exchanges and technology firms in order to better position themselves to fend off competition from Alternative Trading Systems (ATS) and Multilateral Trading Facilities (MTF)
6. Selected insurance companies will shed non-core assets and look to streamline and/or hedge individual product portfolios to limit liabilities
Reinventing Glass-Steagall
With Congress already debating a sweeping overhaul of financial regulation, perhaps the most enduring regulatory stricture of the Depression era is again getting an airing in Washington. The venerable Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business were repealed in 1999. Now, as the banks try to move on from the dreaded salary caps and the humiliation of TARP, lawmakers are wondering whether getting rid of Glass-Steagall was such a good idea.
Financial giants such as Goldman Sachs could be broken up under two bills introduced in Congress on Wednesday, one with the backing of former Republican presidential nominee John McCain. Both would reinstate Glass-Steagall. Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis — such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo — to spin off investment and insurance operations, according to Demos, a progressive think tank in New York. A similar measure was offered on Wednesday by six Democrats in the House of Representatives.
To be fair, many have wondered whether dumping Glass-Steagall was such a good idea. What’s odd is that the discussion about bringing it back comes as almost an afterthought to the massive regulatory reform bill now before Congress. Rather than start from scratch, it may have made more sense to try to reinstate laws that the marketplace was already familiar with, and add new bits around the edges.
While the banks may think they are strong enough to shed TARP, it’s hard to see how they would survive the cleaving of Glass-Steagall at this stage of their recovery. Perhaps by forcing the sector to resplit itself, the remaining banks would be forced to go back on TARP. While that might have some political appeal, analysts say restoring Glass-Steagall is probably a non-starter because it would be seen as stoking unemployment. Going back to more Depression-era regulation would also be difficult to sell as a progressive approach to modern day problems.
It may be impossible to put that “genie back in the bottle”, but the government needs to enact some meaningful legislation that forces these financial institutions to be responsible for themselves. The public certainly has not benefitted from all the money given to these institutions. Naysayers to any regulation will counter that this money kept us from a depression, but they fail to show how any but the finanacial institutions have gained. The FED now hides all the Toxic Assets within its (hidden) balance sheets and somehow thinks we who are actually paying for this bailout will forget. Durbin may have been 100% correct when he stated that Wall Street runs the government. A very sad state of affairs for a once great nation.
