Posted on 13 Jan 2009
In its continued effort to repay a $60 billion government loan, American International Group Inc. agreed to sell a Canadian unit to Bank of Montreal for about C$375 million ($305 million).
According to the Toronto-based bank, the purchase of AIG’s Canadian life insurance business will add about 400,000 clients and 300 employees, and will increase Bank of Montreal’s earnings within a year.
AIG is being forced to sell dozens of businesses, including a jet-leasing company and insurance operations in the U.S. and Japan, to repay a U.S. government loan. The New York-based insurer raised $1.8 billion in asset sales before today’s announcement, including an equipment insurer and a private bank.
“It’ll be quite difficult indeed for AIG to sell sufficient assets at sufficient prices to pay down its government debt,” said David Havens, an analyst at UBS AG’s credit trading desk.
The deal values the Canadian operations at “slightly above” book value, or assets minus liabilities, said David Monfried, an AIG spokesman in New York. The final purchase price will adjust if the unit’s worth changes before the acquisition is completed, AIG said in the statement.
For Bank of Montreal, Canada’s fourth-biggest bank, the cash purchase will boost insurance revenue more than fourfold and may expand its asset-management business by selling investment products to insurance clients.
“It makes sense as a way for Bank of Montreal to build out their wealth-management platform,” said Ian Nakamoto, director of research at MacDougall MacDougall and MacTier Inc. in Toronto, which manages about C$3 billion, including Bank of Montreal shares.