AIG on ‘Clear Path to Repaying Taxpayers,’ Says CEO Benmosche

Article

But Treasury Chief Says a Full Recovery for Taxpayers Remains Uncertain

The head of bailed-out insurance giant American International Group said in late May that the company was on its way to repaying the government, but a U.S. Treasury official said taxpayers could still face losses.

AIG is operating with $132 billion in government support after being rescued by the government in 2008 and early 2009 on fears that an uncontrolled bankruptcy would trigger a broad collapse of the global banking system.

“AIG is now on a clear path to repaying taxpayers,” AIG Chief Executive Robert Benmosche told a panel overseeing U.S. bailout efforts. “In recent months, we have become less reliant on government aid and have been able to instead tap the capital markets.”

Benmosche and a senior U.S. Treasury official told the Congressional Oversight Panel that AIG’s pending deals to sell two international life insurance units would allow AIG to fully repay some $83.2 billion in Federal Reserve loans and investments, and Benmosche said taxpayers would eventually earn an “appropriate profit.”

But the Treasury’s chief restructuring officer, Jim Millstein, told the panel that a full recovery for taxpayers remained uncertain.

The Treasury Department holds about 80 percent of AIG’s common equity and some $49.1 billion in AIG preferred stock.

The government assistance for AIG spurred a virulent public backlash when it emerged early last year that executives of the failed firm were paid generous bonuses and that big AIG clients such as Wall Street giant Goldman Sachs were spared from losses in deals with the insurer.

Looking for Value

Millstein told the panel that at current market prices, the Treasury’s common equity stake in AIG “has value that will inure to the taxpayers benefit,” but recovery on the preferred stock is uncertain.

Clifford Gallant, managing director at financial analysis firm Keefe Bruyette and Woods, said he believes AIG would not yet be viable without government support. He recommends against buying its shares and has a stock price target of just $6 – a level below what was even AIG’s lowest price during the height of the financial crisis.

“If the government were to walk away today, and withdraw all of its support, (AIG) would not be in a position to conduct business,” Gallant told the panel.

Benmosche, however, painted the picture of a company moving toward recovery.

He reaffirmed his commitment to completing the sales of AIG’s international life insurance units American International Assurance and ALICO by the end of the year for a total of about $51 billion, and emphasized the deals’ importance in repaying U.S. taxpayers.

An influential shareholder voting advisory firm, RiskMetrics, has recommended that shareholders of Britain’s Prudential Plc reject the proposed $35.5 billion purchase of AIA in a June 7 vote.

RiskMetrics said the deal carried a “full price” and would need very high growth rates to produce a “reasonable” return for Prudential.

Looking to Sell

Millstein said the government would seek to sell its stake “as soon as practicable” after AIG boosts its credit rating to single-A status. AIG is currently rated one notch lower at A-minus by Standard and Poor’s, with a negative outlook.

He said AIG had reduced its risk by slashing its exposure to credit default swaps to $136 billion from about $400 billion – with about $109 billion of the remaining exposure tied to transactions with European banks.

Two officials from the New York Federal Reserve Bank also appeared before the panel and defended their controversial decision to pay off AIG’s credit default swap counterparties in full, saying they did not consider making emergency lending to AIG conditional on the company negotiating concessions.

“Conditioning our lending on AIG coercing certain creditors to agree to reduce the amounts due and owing from AIG would have been to ensure failure,” Thomas Baxter, the New York Fed’s general counsel, and Sarah Dahlgren, who led AIG rescue efforts at the New York Fed, said.