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Fed Joins AIG Loss-Sharing Pact with MetLife

Source: NY Times

Posted on 11 Mar 2010

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The Federal Reserve Bank of New York is joining the American International Group in a loss-sharing agreement that is part of the insurer's sale of its American Life Insurance Company unit to MetLife, Bloomberg News reports.

DealBook has highlighted a five-year loss-sharing agreement that MetLife has reached with AIG over potential losses tied to Alico's Japanese real estate holdings. Bloomberg adds that the New York Fed and AIG will use some of the MetLife stock they have gained from the sale to help cover losses as well, citing two unidentified persons.

AIG’s Japan mortgage holdings were deemed a “more troubled asset” by MetLife, which is also indemnified from losses on one of the U.K. businesses it will acquire in the purchase of American Life Insurance Co. AIG said March 8 it is divesting Alico, which operates in more than 50 countries including Japan, to pay down bailout debts on a $60 billion Fed credit line.

“You have to ask yourself, ‘does the American taxpayer have any hope of getting their money back any other way besides selling this business?’” said William Cohan, a former JPMorgan Chase & Co. banker and author of “House of Cards,” about the financial crisis. An agreement for one side to retain some risk is typical in deals “when the buyer and seller have a difference of opinion about an asset,” he said.

The New York Fed agreed to the five-year, loss-sharing deal because it expects to be repaid on its $9 billion investment in the Alico vehicle, said one of the people familiar with the regulator’s discussions who declined to be identified because some transaction details are private.