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AIG in Talks with Gov About Completing Bailout Payments

Source: New York Times

Posted on 09 Aug 2010

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According to Robert H. Benmosche, CEO of American International Group, the insurer has entered discussions with the federal government to discuss how AIG will finish repaying, with interest, the $130 billion bailout it received courtesy of US taxpayers.

Separately, he said, the company was making progress toward a potential sale of its consumer finance unit, one of several divisions it planned to shed as part of its turnaround.

"We’ll make sure taxpayers get paid back in full, and they will,” said Benmosche, as the company reported financial results that seemed to signal progress toward the repayment goal. “They’ll get paid back at a profit."

The company reported a $2.7 billion loss for its second quarter, but the loss stemmed from a $3.3 billion charge related to the sale of a major international unit to MetLife. Excluding the charge, AIG reported $1.3 billion in profit and $2.2 billion in operating income. Both figures showed improvement over the same time last year.

Benmosche, approaching his first anniversary as AIG's leader, has embarked on an aggressive campaign to sell off businesses, making the company much smaller than it was at the height of the financial crisis, when it faced possible collapse.

Along the way, Benmosche has clashed with some of the company’s overseers, including Harvey Golub, who stepped down as AIG's chairman last month. The company replaced Golub with Robert S. Miller, a turnaround expert with whom Benmosche said he worked well.

AIG has begun holding talks with the Federal Reserve about ways to pay down its credit line, which had $20.5 billion outstanding as of June 30, plus an additional $6 billion in accrued interest and fees.

Already, the company is moving forward with the sale of two units: the American Life Insurance Company, an overseas insurance business, and Nan Shan, a Taiwanese life insurance company. It is also on track to sell American International Assurance, its Asia life insurance business, in an initial public stock offering.

AIG is also accepting bids for its consumer lending unit, American General Financial Services, and hopes to announce a sale sometime this month, Benmosche said.

The stakes of the turnaround strategy are high: only after shedding its reputation as a ward of the state can AIG again flourish as a company, Benmosche said. So long as questions remain about its dependence on government borrowings, the insurer could be hard-pressed to tap the stock and credit markets for fresh capital, he said.

Benmosche said that once the debt is paid off, the company can hold serious negotiations with the Treasury Department about the government’s shedding of its nearly 80 percent stake in AIG. One option is to convert the government’s preferred shares into common stock that can be sold off over time, as is happening with Citigroup.

“What’s important is that we have to get it right,” he said. “We have to make sure that we’re not leaving a lot on the table.”

Meanwhile, AIG has made big strides in the businesses it is keeping, Benmosche said. Investment income in both its general and domestic life insurance operations is up, and while revenue from premiums written has fallen, that was in part because the insurer refused to cut its prices too far.

“A year ago, analysts were talking about a potentially enormous erosion of our business,” he said. “We have in fact been very successful in retaining business.”

Benmosche said that earlier this year, he visited 50 of AIG's biggest customers, and described the feedback as positive. So long as the company continued to make progress in paying back the government, customers indicated that they would most likely stay put, he said.

Another major AIG business, the aircraft leasing company International Lease Finance Corporation, plans to raise up to $4 billion from the debt markets to help pay off a lifeline extended by the Fed. It also recently named a new management team led by Henri Courpron, a former Airbus executive.

The company is continuing to wind down AIG Financial Products, the unit whose deteriorating credit-default swap business was at the center of the 2008 financial crisis. AIG said that the unit had reduced the notional amount of its supersenior credit-default swap portfolio by 51 percent from Dec. 31, 2009 to June 30, to $89.5 billion.