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AIG Looking to Sell Consumer Finance Unit

Source: Financial Times

Posted on 27 May 2010

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AIG is looking to sell its consumer finance unit American General Finance in an effort to raise funds to repay the US government and divest a non-core business that suffered badly during the financial crisis.

People close to the situation said AIG – 80% owned by the US government – had hired Bank of America Merrill Lynch to restructure and sell AGF.

AIG, which has received $180 billion in rescue funds from the US Treasury and the Federal Reserve, declined to comment on Wednesday, but it has said it was looking at strategic alternatives for AGF. The business, which has 1,200 branches and 1m customers across the US, had an operating loss of $800 million in 2009 as its loans to lower-income consumers soured and funding markets froze.

Potential buyers, which include private equity funds and financial groups, have been asked to submit their expressions of interest over the next few weeks, according to one person involved in the process.

Insiders said they expected buy-out funds to be interested in AGF but warned that volatility in capital markets and questions over the company’s reliance on short-term funding would complicate any sale and affect the final price.

AGF had revenues of $2.3 billion last year and receivables of more than $18 billion – most of them residential loans – at the end of March, but it is unclear how much it could fetch if sold.

AIG insiders argue that, regardless of price, a sale would help it by eliminating the need to support AGF.

Some buy-out funds said they would bid for AGF especially if, as expected, BofA provided loans to aid the sale.

Separately, James Millstein, chief restructuring officer at the US Treasury, said a public offering of AIA, the Asian life insurance unit of AIG, remained a “very viable alternative” if Prudential shareholders blocked the UK insurance company’s agreement to buy the division.