I wish I had the time to analyze this deal, but my travel schedule is cutting into blogging time, In addition, I don’t have a feel for whether the units mentioned in this article are merely suffering in accord with the crappy financial environment, or may have suffered additional, perhaps lasting damage.
Two observations: First, every time AIG has retraded its deal the US taxpayer has come out worse, so my assumption in the absence of conflicting evidence is that this is more of the same.
Second, many observers refer to AIG as “nationalized” due to the government’s 79.9% ownership. But has the Federal Reserve, for instance, asked board members to submit letters of resignation? Power is not simply a function of standing, but also of will, and the powers that be seem to have exercised just about no influence, save the ouster of CEO Robert Willumstad and raising a stink about fancy parties. Note the desire expressed to keep AIG afloat. In context, it could just as well mean preserving their standing as a private concern, rather than merely operating as a business. If AIG were truly nationalized, rating agency downgrades would not be an issue; the firm would be treated as state owned, hence state backed and deserving of an agency-type rating.
Informed reader comment encouraged. From the Financial Times:
AIG and the US authorities are in advanced discussions over a radical restructuring that would split the stricken insurer into at least three government-controlled divisions in an attempt to keep it afloat, according to people close to the situation.
The restructuring, described by one insider as a “controlled break-up”, could lead to the end of AIG’s 90-year history as a stand-alone global insurance conglomerate. It also could provide a template for carving up other troubled financial groups – such as Citigroup – should they be brought under government control…
Under the plan, the government would swap its current 80 per cent holding in the insurer for large stakes in three units – AIG’s Asian operations, its international life insurance business and the US personal lines business. A fourth unit, comprised of AIG’s other businesses and troubled assets, could also be formed.
In return, the authorities would relax the terms, or even cancel a large portion, of a $60bn five-year loan to AIG and convert $40bn-worth of preferred stock into shares, in an effort to ease the company’s burden.
If the plan goes ahead, AIG would remain as a holding company for now. But people involved in the talks say that company could disappear if the government decides to recoup taxpayers’ investments in the insurer by selling or listing the three divisions separately…..
However, people close to the situation said AIG was on track to announce the overhaul on Monday, when it is expected to report a $60bn loss with its fourth-quarter results….
One of AIG’s most prized assets, American International Assurance, its Asian business that was once valued at $20bn, attracted lukewarm interest. Potential bidders have been deterred by turbulent conditions in insurance and credit markets.
The sale of AIG’s US personal lines business, which had been close to being acquired by Zurich Financial, has also run into trouble as funding markets remain under pressure, according to people familiar with the process.
The two divisions are likely to split off. The third unit to be carved out, American Life Insurance Company, is a global life insurance company with operations in more than 50 countries and a large presence in Japan.
It remains unclear whether the US life insurance business and Foreign General, AIG’s international property and casualty insurer, will be included in one of the three divisions or sold separately. International Lease Finance Corporation, AIG’s large aircraft leasing business, is likely to be given a government credit line and put up for sale.