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Comment by ssivark | Hacker News Reader

Yes, but more precisely it’s a signifier of the market’s belief about the (current value of) future cash flows of the company (for investors) and future price movements of the share (for speculators).

So, if the liabilities exceed the assets by a significant margin, will shareholders trust the company enough for the market value of the share to not move towards zero?

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My question is what that number has to do with the ability to absorb a loss (either with assets under management or with reservs or with cash flow). To compare: JPMC has something like $2.5T(!) under management, but a market cap of something like $350B.

It means that a relatively tiny (~1%) forecasting error in the long-term values of assets/liabilities, and how the future might play out, can make or break the company. That means that the predictive model for the future better be very good, and "black swan" surprises unanticipated by the model will have nasty consequences.

While I'm sure a $99B loss would be devastating (after all, it would be more than double the combined insurance claims from 9/11, and close to 3x the combined claims from Hurricane Sandy), it's not at all clear to me how the materiality of that loss relates to Prudential's market cap, which is simply the floating value of all Prudential's outstanding shares.

I keep asking what the connection between market capitalization and significance of a particular loss, and, respectfully, you keep begging the question. "It could break the company". Ok, I mean, that sounds pretty plausible; it would be a world-historic loss. But what is it about Prudential's market cap that makes it one? Market value isn't book value.

The company will be put into receivership when it can no longer meet capital requirements imposed by regulators, this may not be a company breaking event - the receivership proceedings will determine if the insured and creditors are best served by liquidation, conservancy, or rehabilitation.

Assuming a somewhat rational market, a market cap above zero means that the present value of future cash flows is greater than (or equal to) the debts owed. In practice this means the company can borrow against those cash flows, and continue to meet capital requirements - avoiding potential liquidation.

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