AIG CEO Comments on ILFC Sale, ‘Systemically Important’ Classification

By | June 5, 2013

American International Group Inc. Chief Executive Officer Robert Benmosche raised doubt about whether the company will complete a sale of its plane-leasing unit to a Chinese investor group by a deadline this month.

“June 14, we have to make a decision,” he said yesterday at a conference in New York, where the insurer is based. “Whether this deal will get done or not, we don’t know.”

AIG said last week that it hadn’t received a deposit required in an agreement to sell International Lease Finance Corp. to acquirers led by New China Trust Co. Chairman Weng Xianding. That would allow AIG to cancel the accord, reached in December, to sell 80 percent of ILFC for about $4.2 billion.

The transaction is subject to approval from U.S. and Chinese regulators, including the Committee on Foreign Investment in the U.S. Benmosche, 69, said yesterday that AIG has the option of cutting its stake in Los Angeles-based ILFC through a public offering if the deal falls apart.

“Common sense would tell you that we would continue our dialogue” with the potential buyers, he said. There are “a lot of hurdles to go through. It’s very complicated, and we’re doing the best we can.”

Steven Lipin at Brunswick Group, a spokesman for the Chinese buyers, declined to comment.

Investors have been counting on AIG to sell the unit so it can speed buybacks and pay a dividend, according to analysts including Sanford C. Bernstein Co.’s Josh Stirling and Keefe Bruyette & Woods’s Meyer Shields. Benmosche said that the transaction is meant to reduce risk and narrow AIG’s focus.

Diverse Earnings

Maurice “Hank” Greenberg, who built AIG into the world’s largest insurer in his four decades as CEO, bought ILFC in 1990 to diversify earnings. The company made money by capitalizing on the spread between AIG’s borrowing costs and the rates paid by airlines for leasing jets.

AIG has sold assets to repay a 2008 U.S. bailout that swelled to $182.3 billion. The government exited its stake last year at a profit.

“The ILFC transaction is not about raising cash to buy back shares,” Benmosche said. “This is about simplifying AIG, having a company that is manageable, in my opinion, and is around insurance, and not how to begin to get extra yield on some of the investments we could make as a company leveraging what used to be the triple-A of AIG.”

ILFC had about $24.1 billion in debt as of March 31 and owned or operated a fleet of about 1,000 aircraft, according to a regulatory filing.

ILFC Swaps

Five-year credit-default swaps tied to the plane lessor climbed 5 basis points to a mid-price of 299.5 basis points at 5:02 p.m. in New York yesterday, according to prices compiled by Bloomberg. That means it would cost the equivalent of $299,500 annually to protect $10 million of obligations for five years. The swaps typically rise as investor confidence deteriorates.

A federal oversight committee on June 3 identified AIG as a potential risk to the financial system in a step toward putting the insurer under tighter government scrutiny. Prudential Financial Inc. and a unit of General Electric Co. were also given the designation that day.

Benmosche, who took over as CEO in 2009, said he welcomes the additional oversight of the holding company as a supplement to supervision of units by regulators in U.S. states and around the world.

“Somebody has to be looking at AIG in total,” he said.

The CEO said he had a “little bit of frustration” that some rivals may face less oversight. He cited Warren Buffett’s Berkshire Hathaway Inc., which competes against AIG selling insurance.

Same Arena

“It’d be nice if all big companies that have financial services as part of it get to be in the same arena,” Benmosche said. “I worry about some people who have been left out, because that isn’t appropriate.”

Berkshire didn’t receive capital injections from the government during the 2008 financial crisis. Instead, Buffett invested $8 billion of his company’s funds in Goldman Sachs Group Inc. and GE as credit markets froze and stocks plunged. Buffett, 82, didn’t respond to a message seeking comment sent to an assistant.

AIG declined 1.5 percent to $44.10 yesterday in New York and has rallied 25 percent this year.

Editors: Dan Reichl, Ed Dufner

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