Aig

I don't know about the article. Huge news with the $700bil bailout, yet no mentioning of it at all. Could this have possibly been written Thursday ?



AIG's Stock Is Likely to Be Toast




IT WAS QUITE A FALL FOR A COMPANY that in 2000 had a stock-market value of $240 billion. Losses on mortgage securities forced insurance giant AIGTuesday to accept a punitive bailout from Washington to avoid a bankruptcy filing the next day. The deal could make Uncle Sam a winner and shareholders a loser.
Under the rescue plan, the Federal Reserve will make available an $85 billion revolving credit line to AIG (ticker: AIG). In return, it will receive warrants that, upon exercise, would give the government a 79.9% common-stock interest in the company.

The interest rate will float at 8.5 percentage points above the London interbank offered rate, which currently would make the rate for AIG about 11.5%. And since AIG has about 2.7 billion common shares outstanding, the warrants would give the Fed about 10.7 billion shares, putting total shares outstanding at 13.4 billion.

Of major moment is whether the government will take a loss on the $85 billion two-year credit facility. Probably not -- it might even make a profit -- although it's uncertain what AIG might net from the sale of diverse global assets that include operations in property and casualty insurance, life and retirement products, the world's largest airplane-leasing businesses, an American consumer finance outfit and a large U.S. mortgage insurer.


The government line of credit, with all the company's assets pledged to it, is senior to other AIG debt, meaning that Uncle Sam will be the alpha male lion chomping on the insurer's carcass before any other creditors can move in.

As for the common stock, it will likely be toast, despite the many brokerage-house reports that have estimated its eventual value at anywhere from $2 to $10 a share even after the huge dilution following an exercise of the government warrants. For one thing, AIG's senior, unsecured debt was trading at around 60 cents on the dollar late last week; if the debt takes any loss, the equity, of course, is wiped out.

Yet such considerations didn't stop FBR Capital Markets from estimating AIG's breakup value, or what might be available to shareholders, at as much as $150 billion or more. That would be roughly twice the $78.1 billion that AIG reported as its net worth as of June 30.

But even that number seems wildly inflated. One would have to deduct $10.7 billion in goodwill, at least half of the $46.7 billion in deferred acquisition costs (early surrender of policies will keep AIG from fully recouping agent commissions it has fronted) and at least $20 billion in mismarked real-estate assets.

AND EVEN A SHRUNKEN CURRENT net worth of, say, $25 billion is likely too gene rous. The company, whether it likes it or not, is in a run-off and liquidation mode. Distress sales fail to garner rich prices since potential bidders sense a certain desperation. Yet AIG doesn't have the luxury of time.

An insider tells Barron's that the company's brush with bankruptcy has particularly harmed its all-important insurance business. Key employees are looking for other jobs. Business buyers of property and casualty insurance are refusing to renew policies or demanding repayment of premiums covering time left on existing policies. Retirement-plan sponsors are heading for the hills. New business evaporates on both the life and casualty sides. Why deal with a wounded carrier in what's basically a commodity business when so many financially unblemished competitors are available? "People have to only look back to how quickly other insurers like Reliance Insurance burned down once they got into financial trouble," our source says.

Barron's heartily recommended buying the stock earlier this year ("AIG's Selloff: a Huge Opportunity," Feb. 18) when the stock had fallen to about 45. After rallying for a time, it resumed its decline, prompting us in a June 23 Follow-Up column to advise bailing out after a top management change and continued write-downs of AIG derivatives tied to subprime securitizations. The stock then was trading at around 32.

The latest crisis unfolded with stunning rapidity. On the weekend beginning Sept. 12, eyes were fixed on Lehman's death throes when rumors began swirling that AIG needed $40 billion in new capital. By Monday, the figure had risen to $75 billion, and on Tuesday to the $85 billion it obtained that evening. The government acted only after a large bank consortium said it couldn't raise the amount and various private-equity concerns took a pass.

At first, it seemed to be a liquidity problem. As is typical with insurance companies, most of its capital is trapped in regulated state entities, making the holding company, at the top of the capital structure, vulnerable to sudden capital needs. That's what happened on that Tuesday after the company suffered a credit downgrade from S&P, Moody's and Fitch.

IT WAS THUS FORCED to pony up nearly $20 billion both as collateral and ear ly-termination payments on underwater credit-default swaps (CDS) that the company had sold to a number of U.S. investment banks and European banks as insurance against any decline in the value of collateralized debt obligations they owned that were full of subprime mortgage paper.

Many suspect that AIG's exposure to bad mortgages and other debt paper is far larger than reflected in its second- quarter financials. For example, AIG at the end of the quarter had sold insurance, or CDS, against some $447 billion of securities filled with mortgage and corporate- loan paper. Of greatest concern is the $80 billion of this insured portfolio largely backed by subprime mortgages. Only $24.8 billion has been charged off so far, which seems extremely light.

Unbeknownst to Wall Street until the Texas insurance commissioner blew the whistle in June, AIG was also taking cash generated by its life-insurance subsidiaries in return for lending out their investment securities and putting it into long-term subprime mortgage paper ra ther than shorter-term liquid investments. So when the borrowed shares were returned and AIG was compelled to return the cash, it suffered nasty losses selling the now-price-depressed mortgage paper. Some estimate that these capers may ultimately cost AIG another $20 billion.
Finally, AIG at the end of the second quarter was sitting on $23 billion in unrealized losses in its insurance investment portfolio. More than likely a goodly part of these losses will have to be taken soon.

So it seems that insensate speculation, particularly at AIG Financial Products' Wilton, Conn., trading room, has done in a venerable financial enterprise built over four decades by onetime chief Maurice "Hank" Greenberg, who was deposed after an accounting scandal in 2005.

Rumors are circulating that Greenberg is forming a group to pay off the U.S. loan and void the warrants that would give Uncle Sam nearly 80% of AIG. We don't put much credence in this possibility, even though the stock jumped 43% Friday to 3.85.
-- Jonathan R. Laing

 

theres your answer below. they mentioned the greenberg bs and the price jump so i was written after the close friday. bottom line the deals done with the gov't. there's no going back. there would be 1 mil lawsuits if they reneged as millions sold there stock at huge loses based on the gov't buying them. if the gov't changed there mind they deserve a huge lawsuit.


Rumors are circulating that Greenberg is forming a group to pay off the U.S. loan and void the warrants that would give Uncle Sam nearly 80% of AIG. We don't put much credence in this possibility, even though the stock jumped 43% Friday to 3.85.

 

BUSINESS SEPTEMBER 22, 2008 AIG Holders Seek Alternative to U.S. Plan

By MONICA LANGLEY, LIAM PLEVEN and DENNIS K. BERMAN

Major shareholders concerned about American International Group Inc.'s $85 billion loan agreement with the federal government plan to meet Monday to discuss alternatives to the bailout plan, according to a person familiar with the matter.

Meanwhile, departed Chief Executive Robert Willumstad, who was replaced in Treasury's rescue of the insurance giant, told the company Sunday that he won't accept his severance payment of $22 million, according to a person familiar with Mr. Willumstad's decision.

Shareholders who are dissatisfied with the deal are exploring ways to quickly pay off the loan, ...

 

Good thing I decided not to give up on this pig.

 

I tossed mine at 5. I may regret it, but I didn't want too get to greedy.

I have this unnatural "5 is alive.." thought in my head. And 10 is healthy, so I didnt believe in 10. I was hoping for a short covering spike higher than 5, with some pain momo, didn't see it. Maybe tomorrow. But I wont gain from it.

 

From Reuter's article today:

"We're going to take those assets which are probably very valuable, but can also be digested by buyers in relatively manageable bites, and we will simply start to market them," Edward Liddy, who was appointed AIG's chief executive last week, said in an interview on the CNBC financial news channel.

Another article from DJ newswire surmised that they'll likely be getting rid of their most profitable division, apparently jet rental, first.

Like I said before, they're going to have to sell off their best assets in order to raise cash, leaving them with all their crap.

 

He actually said that the strongest part of AIG was their core insurance business and that it was *sacrosant*, as untouchable.

 

apparently strongest != most profitable?


I would also be surprised if they sold off the "core" insurance portion of their business, as that would really not make them an insurer anymore. They're not out to entirely change their business model. No surprises there.

 

The P&C side is not going anywhere. This is the most profitable area of the company.

 

AIG Signs Definitive Agreement with Federal Reserve Bank of New York for $85 Billion Credit Facility
Tuesday September 23, 9:59 pm ET


NEW YORK--(BUSINESS WIRE)--American International Group, Inc. (AIG) today announced that it has signed a definitive agreement with the Federal Reserve Bank of New York for a two-year, $85 billion revolving credit facility. Interest will accrue at a rate based on 3-month LIBOR plus 8.50%. The facility provides for an initial gross commitment fee of 2% of the total facility on the closing date. AIG will also pay a commitment fee on undrawn amounts at the rate of 8.50% per annum. Interest and the commitment fees are generally payable through an increase in the outstanding balance under the facility.
AIG is required to repay the facility from, among other things, the proceeds of certain asset sales and issuances of debt or equity securities. These mandatory repayments permanently reduce the amount available to be borrowed under the facility. Under the agreement, AIG will issue a new series of Convertible Participating Serial Preferred Stock to a trust that will hold the Preferred Stock for the benefit of the United States Treasury. The Preferred Stock will be entitled to participate in any dividends paid on the common stock, with the payments attributable to the Preferred Stock being approximately, but not in excess of, 79.9% of the aggregate dividends paid. The Preferred Stock will vote with the common stock on all matters, and will hold approximately, but not in excess of, 79.9% of the aggregate voting power. The Preferred Stock will be convertible into common stock following a special shareholders meeting to amend AIG’s restated certificate of incorporation.

Borrowings under the facility are conditioned on the Federal Reserve Bank of New York being reasonably satisfied with, among other things, AIG’s corporate governance. The facility contains customary affirmative and negative covenants, including a requirement to maintain a minimum amount of liquidity and a requirement to use reasonable efforts to cause the composition of the Board of Directors of AIG to be satisfactory to the trust holding the Preferred Stock within 10 days after the establishment of the trust.

AIG Chairman and Chief Executive Officer Edward M. Liddy said, “AIG made an exhaustive effort to address its liquidity needs through private sector financing, but was unable to do so in the current environment. This facility was the company’s best alternative. We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company. Importantly, AIG’s insurance subsidiaries remain strong, liquid and well-capitalized.”

The facility will be secured by a pledge of the capital stock and assets of certain of AIG’s subsidiaries, subject to exclusions for certain property the pledge of which is not permitted by AIG debt instruments, as well as exclusions of assets of regulated subsidiaries, assets of foreign subsidiaries and assets of special purpose vehicles.

It should be noted that the remarks made in this press release may contain projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to management, operations, products and services, and assumptions underlying these projections and statements. It is possible that AIG's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these projections and statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in the specific projections and statements are discussed in Item 1A. Risk Factors of AIG's Annual Report on Form 10-K for the year ended December 31, 2007, and in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of AIG's Quarterly Report on Form 10-Q for the period ended June 30, 2008. AIG is not under any obligation (and expressly disclaims any such obligations) to update or alter its projections and other statements whether as a result of new information, future events or otherwise.

American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG’s common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.