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AIG's Fed Borrowings Have Risen

Source: WSJ


Posted on 15 May 2009

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American International Group Inc.'s (AIG) borrowing from the Federal Reserve has increased 22% from the low point disclosed this year, highlighting the pressure on the insurer's businesses and its efforts to sell assets to pay down the debt.

The insurer's average outstanding balance for the week ended Wednesday was $45.7 billion, according to the Federal Reserve, up from $37.36 billion for the week ended Feb. 18.

AIG still has plenty of room to maneuver, because it can borrow up to $60 billion under the credit line, which AIG got in the government bailout that rescued the firm from potential bankruptcy in September. It also has access to $30 billion under the government's Troubled Asset Relief Program that it hasn't tapped.

The company is working on several transactions that could substantially reduce the debt balance. For instance, it is preparing to give the government a stake in two of its life-insurance operations overseas, which could have a value of $26 billion. The government would cash in its stakes when the units were sold.

In addition, AIG is taking steps toward a possible initial public offering of one of those businesses, its Asian life-insurance unit, according to people familiar with the matter. Bankers expect AIG to invite investment banks to submit proposals as early as next week to underwrite a listing of the unit, American International Assurance Co., these people said.

Bankers say they will suggest that AIG sell about 20% of the company's stock to the public. That would raise at least $5 billion if investors value the entire company about $25 billion.

Separately, AIG is taking steps to sell its life-insurance unit in Taiwan to bidders or the public, according to people familiar with the situation. AIG hired Morgan Stanley to sell Nan Shan Life Insurance Co., the No. 2 life insurer by gross premiums, they said. Nan Shan had a book value of about 87 billion New Taiwan dollars, or $2.64 billion, at the end of March.

AIG is also selling its asset-management business, AIG Investments. Indian financial-services group Religare Enterprises Ltd. has bid for the unit, according to people familiar with the matter. Those people said Australia's Macquarie Group was the other company still in the race. A Macquarie spokesman declined to comment.

The people said the results of the bids are expected in about three weeks, and that the asking price for the business is in the region of $500 million.

Meanwhile, AIG's new borrowings from the Fed included $2.2 billion the company contributed or lent to its insurance subsidiaries and a $1.7 billion loan to its aircraft-leasing unit, among other things, according to regulatory filings.

The balance outstanding has been relatively stable in recent weeks, but it is generally higher than in the period around the last revision of its government bailout, in early March.

At that point, the reported weekly average figure had been below $40 billion for the entire year. Since then, the weekly average has consistently been above $40 billion.

In testimony submitted to Congress for a hearing this week, AIG's CEO, Edward Liddy said, "We are stabilizing AIG's liquidity so that we do not need support beyond those amounts that the government has already authorized, although as I have said before the state of the economy will be a factor."


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