AIG in Talks for `Complete Government Exit,' CEO Says
AIG CEO Robert Benmosche
Andrew Harrer/Bloomberg
AIG CEO Robert Benmosche told employees “We have commenced discussions with the U.S. government on the process and terms of a complete government exit.”
AIG CEO Robert Benmosche told employees “We have commenced discussions with the U.S. government on the process and terms of a complete government exit.” Photographer: Andrew Harrer/Bloomberg
Aug. 6 (Bloomberg) -- American International Group Inc., the insurer rescued by the U.S., said second-quarter operating profit rose 17 percent as results improved from U.S. life operations. The company is in talks with federal regulators to become independent, Chief Executive Officer Robert Benmosche told employees today in a memo. Bloomberg's Suzanne O'Halloran reports. (Source: Bloomberg)
American International Group Inc., the insurer that turned over a majority stake to the U.S. as part of its bailout, is in talks with regulators to become independent, said Chief Executive Officer Robert Benmosche. The company gained 2.6 percent in New York trading.
“We have commenced discussions with the U.S. government on the process and terms of a complete government exit,” Benmosche told employees today in a memo. “Depending of course on market conditions, which could remain volatile, we expect to make meaningful progress in 2010 on repaying the Federal Reserve Bank of New York, and over time fully repaying all of our obligations to taxpayers.”
Benmosche, 66, is divesting two non-U.S. life insurance divisions, AIA Group Ltd. and American Life Insurance Co., to help repay the 2008 bailout that swelled to $182.3 billion. The CEO must also improve profits at AIG’s remaining property- casualty and retirement services operations to fully repay the U.S., which holds a stake of almost 80 percent in the firm.
The insurer has delivered to the Treasury Department a plan that includes replacing the government’s stake with private ownership, according to a person with knowledge of the proposal who declined to be identified because it hasn’t been finalized.
AIG plans an initial public offering for AIA after the collapse of a $35.5 billion agreement to sell the division to Prudential Plc. AIG struck a deal to sell Alico to MetLife Inc. for about $15.5 billion.
‘Striking Distance’
After selling the life divisions, New York-based AIG will be “well within striking distance of completely repaying the Fed,” Benmosche said in the letter. AIG separately owed the Treasury Department almost $50 billion, according to a June report from the Congressional Oversight Panel.
Treasury Chief Restructuring Officer Jim Millstein said in a May 26 hearing that if AIG’s core insurance businesses earn about $8 billion a year, the company will have enough value to repay the U.S. Those units produced $2.2 billion in operating earnings in the second quarter, matching the results from the first three months of the year, AIG said today.
AIG advanced $1.03 to $40.93 at 4:02 p.m. in New York Stock Exchange composite trading. The company has climbed 37 percent this year, rewarding investors betting on a rebound, including Bruce Berkowitz, who runs Fairholme Capital Management. Fairholme owned about 32.8 million shares as of June 30, the biggest stake after the U.S. government. AIG slipped 4.5 percent in 2009 and plunged 97 percent in 2008.
Treasury Stake
Treasury is considering a plan to convert AIG preferred shares into common stock and sell the holdings over two years, a person with knowledge of talks with the insurer said in April. The plan may be modeled after Treasury’s disposal of its stake in Citigroup Inc., the person said.
The insurer’s strategy to become independent “could result in the issuance of a large number of additional shares of AIG common stock or other equity securities,” the company said today in a regulatory filing. The new securities “could result in significant dilution to AIG’s current shareholders,” the firm said.
AIG today posted second-quarter net adjusted income of $1.34 billion, up 17 percent from the year-earlier period, as results improved from U.S. life operations. The operating profit of $1.99 a share was double the average estimate of two analysts surveyed by Bloomberg.
‘Back to Business’
“As the company strings together acceptable quarters, they’re showing they’re getting back to business as usual, and it helps support the valuations of the businesses,” said Robert Haines, an analyst at CreditSights Inc. in New York.
Operating profit from U.S. life businesses quadrupled from a year earlier to $1.05 billion as investment income climbed on private-equity and hedge-fund results. Companywide, so-called partnership investments generated a $508 million profit in the quarter, compared with a loss of $193 million a year earlier.
AIG incurred a second-quarter accounting charge of $3.3 billion tied to the value of Alico. The impairment pushed the firm to a net loss of $2.66 billion compared with net income of $1.82 billion a year earlier. MetLife raised funds this week in share and bond sales and plans to complete the deal this year.
Realized investment losses narrowed to $564 million from $899 million in the year-earlier period. AIG’s derivatives business posted an operating loss of about $132 million, little changed from last year’s second quarter.
Bond Rally
Unrealized gains on bonds available for sale surged to $10.3 billion from $2.45 billion three months earlier on a climb in the value of corporate debt holdings. The figures, reflecting market fluctuations that aren’t counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.
The insurer, once the world’s largest, was first rescued in September 2008 by the Fed. After three revisions, the firm’s lifeline includes the $60 billion Fed credit facility, a U.S. Treasury Department investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by the company.
The debt on the credit line has declined for seven of the past nine weeks and is $23.7 billion, according to data released by the Fed late yesterday. AIG was allowed by the government in December to reduce the draw by $25 billion in anticipation of proceeds from divestitures of Alico and AIA.
“I’m confident you’ll get your money, plus a profit,” Benmosche told the Congressional Oversight Panel during a May hearing into the AIG rescue and U.S. prospects of being repaid.
AIG is also in talks to hand over stakes in mortgage linked bonds that pushed the insurer to the brink of collapse, people familiar with the matter said last month.
The mortgage assets are contained in Maiden Lane II and Maiden Lane II, entities created in 2008 as part of the U.S. effort to remove toxic securities from the firm. AIG retains a stake in the Maiden Lanes and valued it at $6.7 billion as of June 30, compared with $6.2 billion on March 31.
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; James Sterngold in New York at jsterngold2@bloomberg.net;
Rate These Stories
Rate this Page