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Ever since Mark Tucker took the helm at the Prudential more than three years ago, City analysts and investors have been telling him to sell the UK business so the group can focus properly on Asia, where for some time it has been getting an increasing proportion of its sales and most of its growth. Now they could get all they bargained for, and more.
Thanks to the credit crunch and a disastrous own goal in writing credit default swaps, American Insurance Group, the world's largest insurer, is a forced seller of its Asian business, giving a once-in-a-lifetime opportunity for Tucker and the Prudential to pull off a genuinely transformational deal. AIG plus the Pru has everything the City would want — scale, synergy, a bargain price and a quality business.
Had it come on the market two years ago at three times the price, the City would have demanded Tucker went for it. But today the mere thought he may do just that — and may ask them to help fund it — has left City investors paralysed with fear. A deal they would have loved in good times at an inflated price scares them rigid when it is a bargain because these are bad times.
But it is only when the skies are dark that these opportunities come up. Tucker's quarterly sales figures out today show 15% growth, which will probably prove to be as good if not better than anyone else in the sector.
Going for AIG's assets is a risk, and demands strong nerves even to think about it, but seizing such opportunities is what management is supposed to be about. Given his record, he deserves the chance to pull it off.
Painful truths from a veteran
Where people in the City today queue up to hear the latest analysis from Roger Bootle, Charles Dumas or Andrew Smithers, they once hung on the every word of Gordon Pepper. In his time at Greenwells — a firm of brokers that disappeared into Midland Bank, now HSBC, in the mid-1980s — he was among the City's most influential economists.
Happily, though in a working retirement, he has not lost his ability to stir things up. Not many people could demolish the policies of the Prime Minister, the Financial Services Authority, the accounting profession, the Bank of England, its monetary policy committee and the Debt Management Office in fewer than 200 words, but he did last Friday. Even if you don't agree, you have to admire the logic: “The Prime Minister was very misguided to call for a return to the level of borrowing in 2007. Over-indebtedness is a structural problem that must be solved. Debt must be reduced and not increased.
“The Financial Services Authority does not begin to understand the difference between prudential control of an individual bank and what is required for the banking system as a whole.
“Capital requirements should not at present be raised. They should be lowered. Forced selling should be avoided whenever possible. Forced selling, more than anything else, destroys confidence. The law of supply and demand is reversed. Lower prices force more people to sell rather than fewer.
“In conditions of forced selling, marking to market is disastrous because prices can fall substantially below valuation according to fundamentals.
“Fire-sales must be avoided. Time is needed if positions are to be unwound in an orderly manner.
“The Debt Management Office's mandate to fund the Government's deficit can clash with the use of debt management as an essential tool of monetary policy.
“The separation of the DMO and the Bank of England could be a bigger mistake than the separation of the FSA and the Bank.
“All senior officials of the Bank of England and members of the MPC should be required to read Irving Fisher's Debt Deflation. It is high time that they accept that the conventional theories of the Efficient Market Hypothesis and Modern Portfolio Theory are woefully inadequate.”
It would be comforting to think he was wrong on a lot of this, but he rarely used to be. And the more uncomfortable his insights, the less often he was wrong.
