Fees from AIG Asset Sales Enrich Wall Street Banks

By | March 26, 2010

The crumbling empire of American International Group Inc. is helping to pave Wall Street with gold.

Auctions of the bailed-out insurer’s assets have generated more than half a billion dollars in fees since its near-collapse in September 2008, with every major Wall Street bank getting a piece of the action, estimates from Freeman Consulting show.

The largest sale assignments came to fruition this quarter, when, in a space of just a week, AIG struck deals to sell two major foreign life insurance businesses, one each to Prudential Plc and MetLife Inc., for some $51 billion.

Those two sales have also played a significant role in shaping the first quarter rankings of deal advisers, helping some investment banks make quantum leaps in the coveted league tables, Thomson Reuters data through March 25 shows.

Blackstone Group LP, which has advised AIG throughout the crisis, jumped to No. 9 in the worldwide rankings from No. 78 over the same period last year. Lazard Ltd, which advised Prudential, jumped to No. 5 from No. 11.

AIG, which has been selling assets to repay the U.S. government after a $182.3 billion taxpayer funded rescue, has been involved in as many as 90 transactions with disclosed value of $67.7 billion, the data shows. Together, these deals will generate an estimated $567.2 million in advisory fees, according to Freeman.

But AIG is only one piece of the global financial crisis that has driven financial institution deals in the last two years. The aftermath of the crisis is likely to play a role in keeping investment bankers busy in the coming months as well.

“Ongoing restructurings, access to growth markets and consolidation — and they are all interlinked in a way — but those three things are going to drive the business pretty strongly in the next few years,” said Vikram Gandhi, head of Credit Suisse’s global financial institutions group.

Credit Suisse Group AG, which advised both the buyers, rose to No. 2 from No. 6.

The bank started bulking up its financial institutions practice before the crisis and has focused on improving global co-ordination, which has paid off as many of the deals created by the crisis have been cross-border transactions.

“To a large extent this is a return on that investment,” said Gandhi, who moved to Hong Kong from New York in the summer of 2008.


Although the two AIG deals have given advisers a good start to 2010, they took many months of work.

Indeed for scores of advisers and government officials working on stabilizing AIG and selling its assets, taking time out — even for events such as births, weddings and funerals — has often been difficult.

The fees are well-earned. Morgan Stanley, which is estimated to get the lion’s share with $131.9 million, has been the Federal Reserve Bank of New York’s consigliere.

Morgan Stanley and Blackstone helped devise the strategy that allowed AIG to regain control of auctions that had devolved into fire sales in the months after the bailout.

So when Prudential, which had offered $11 billion for American International Assurance (AIA) in early 2009, came back with a bid closer to $30 billion in January this year, AIG could ask for more, according to sources close to the situation.

AIG was already well on its way to do an initial public offering for AIA, which gave Chief Executive Robert Benmosche and the special committee of the board, led by Suzanne Nora Johnson, the leverage they needed to push Prudential to raise its bid, these sources said.

It did, to $35.5 billion.

The groundwork also gave leverage to Morris Offit, the AIG director leading the committee negotiating with MetLife, these sources said, declining to be named because the deals have not yet closed.

MetLife, which had come in with about $11 billion early last year, agreed to pay $15.5 billion.

The deals are rewarding in other ways, too.

“These are two huge deals that are going to resolve one of the biggest crises we have had,” one of the sources said.

(Reporting by Paritosh Bansal; editing by Andre Grenon)

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