Greenberg Urges U.S. Stake in AIG Below 20% to Attract Capital

By | January 12, 2010

Former AIG chief Maurice “Hank” Greenberg is campaigning for the U.S. government to cut its stake in the insurer to less than 20 percent, saying this would attract new capital to AIG and help taxpayers fully recoup bailout money it received, a source said Monday.

The source, who has direct knowledge of the situation and asked not to be named, said that Greenberg, AIG’s largest private shareholder, has made the proposal as part of a larger plan to restructure American International Group Inc.

The idea is to create a structure for AIG that would yield a full recovery for taxpayers, as an alternative to the terms of the government’s $180 billion support package now, the source said. The government owns nearly 80 percent of the company, once the world’s largest insurer by market value.

Greenberg has discussed his plan with members of Congress and investors since last fall and has been in regular dialogue with AIG Chief Executive Robert Benmosche, the source said.

However, the plan has not found traction with the government so far, the source said.

Other elements of the plan include extending the term of the government’s debt facility by more than 10 years and halving the rate on the government preferred stock to 5 percent, the source said.

The idea behind such a structure is to give AIG sufficient time to service its debt and operate its way through the maturities, the source said.

The plan also calls for recovering the money that AIG gave certain counterparties after its September 2008 bailout, and investing it back into the insurer, the source said.

AIG funneled billions of dollars of taxpayer funds to various U.S. and European counterparties after its bailout, including to Goldman Sachs Group Inc, Societe Generale and Deutsche Bank.

Greenberg’s plan also calls for the company to get a piece of any gains from the vehicles that the U.S. Federal Reserve set up to rid the insurer of its problem assets, the source said.

At the same time, the plan calls for stopping divestment of core AIG businesses, such as life insurers American International Assurance and American Life Insurance Co., the source said.

The insurer could attract new capital from sources such as Asian sovereign wealth funds and large U.S. public pension funds if the government were to cut its stake, the source said.

Greenberg, who built AIG into the world’s largest insurer over nearly four decades, has no designs on running the insurer or being on its board, the source said.

In November, Greenberg and AIG settled a long-standing, bitter legal battle dating back to his unhappy departure from the company in 2005.

Benmosche, who in August became the fourth person to take over as AIG CEO since June 2008, has slowed down divestitures, including halting efforts to sell a stake in property and casualty unit Chartis.

AIG declined to comment, while Greenberg could not be reached immediately for comment.

AIG’s shares closed up 29 cents, or 1 percent, at $29.63 on the New York Stock Exchange.

(Additional reporting by Lilla Zuill; Editing by Phil Berlowitz, Leslie Gevirtz, Gary Hill)

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