The Wall Street Journal
Insurer Sees Taxpayer Profit in Pending Repayment Deal; Greenberg Weighs In
The board of American International Group Inc. and the company's federal overseers were locked in discussions Wednesday night to finalize a plan that would boost the government's stake in the giant insurer to about 92%, and eventually allow the giant insurer to extricate from U.S. ownership.
AIG Chairman Robert "Steve" Miller, at a conference in New York on Wednesday morning, said that U.S. government could end up earning a profit on its investment in AIG. More than $120 billion in taxpayer aid committed to the bailout of the insurer currently remains outstanding.
AIG officials are hoping that providing clarity on the plan will enable the company to raise money from the financial markets on its own again in six to 12 months, Mr. Miller said.
The exit plan principally addresses the government's $49 billion investment in AIG from Treasury's Troubled Asset Relief Program, which was set up two years ago to provide capital infusions to institutions during the financial crisis. Treasury plans to convert all the preferred shares it holds into AIG common shares, which would raise the government's stake in AIG to around 92% from 79.8% currently, according to people familiar with the matter. Treasury would then sell the shares over time to exit the investment.
The Federal Reserve Bank of New York is separately trying to recoup $19.7 billion in secured debt from AIG and $26 billion from sales of the company's two largest overseas life insurance businesses.
Determining the price at which to exchange its preferred shares for AIG common shares has been a sticking point in strategy discussions, people familiar with the matter say.
Converting at a discounted price could position taxpayers to reap a profit, but it also could put pressure on the stock price, making it harder for the government to sell its shares. Converting at a higher price—such as one above the current market price for AIG shares—would result in the government taking a smaller stake in AIG and would potentially generate profits for private shareholders at the expense of U.S. taxpayers.
Treasury officials, including chief restructuring officer James Millstein, have told company officials they don't want to set a price that would present a bonanza for hedge funds or other private investors including former chief executive Maurice R. "Hank" Greenberg, according to people familiar with the matter.
"I think that's disgraceful to say they don't want me or shareholders to make money," said Mr. Greenberg, AIG's longtime leader who left in 2005 amid an accounting probe.
Mr. Greenberg remains one of the company's private shareholders and most-vocal critics of AIG's government bailout.
He also challenged the view, held by some federal officials, that it will take around a year and a half for the U.S. government to completely dispose of its stake.
"I think it's going to take years, maybe a decade or more, for [the government] to sell down over 90% of the company," Mr. Greenberg said in an interview.
"As soon as they try to sell the stock it will go down," making further sales more difficult, he predicted on Wednesday.
Analysts acknowledged Treasury's dilemma.
"They don't want to damage the stock yet again, as that could hurt the company's value and introduce additional uncertainty, but they also cannot look like they are protecting private shareholders," says Angelo Graci, an analyst at Chapdelaine Credit Partners in New York. He says that many steps that AIG and the government have taken in the past two years have been aimed at improving AIG's value in the eyes of investors, to facilitate future sales of the government's shares.
On Wednesday, AIG shares closed up 13 cents to $37.45 a share.
Behind AIG and government officials' optimism is what they see as an improving outlook for the insurance businesses that will form the core of the company after it completes sales of its major overseas life-insurance units and non-core assets in the coming months.
AIG and Prudential Financial Inc. are expected to announce as soon as Thursday a sale to Prudential of two Japanese life-insurance units for a combined $4.8 billion, according to a person familiar with the deal.
AIG is holding on to a global property- and casualty-insurance business and a U.S. life-insurance and retirement-services business, both of which were hit hard by customer and employee defections in the wake of the bailout two years ago, but have since stabilized in some part.
The government's ability to sell its AIG shares will depend on how a large number of outside investors view AIG's value as a smaller insurance company, and their willingness to invest in an entity that will be majority owned and controlled by the government for some time.
The company has a relatively small shareholder base which holds $5 billion worth of shares, and few equity analysts have been covering AIG since its 2008 government bailout. AIG and its representatives also need to convince major credit-rating firms that the company can achieve a strong rating on its own without government support.
AIG Chairman Robert "Steve" Miller, at a conference in New York on Wednesday morning, said that U.S. government could end up earning a profit on its investment in AIG. More than $120 billion in taxpayer aid committed to the bailout of the insurer currently remains outstanding.
AIG officials are hoping that providing clarity on the plan will enable the company to raise money from the financial markets on its own again in six to 12 months, Mr. Miller said.
The exit plan principally addresses the government's $49 billion investment in AIG from Treasury's Troubled Asset Relief Program, which was set up two years ago to provide capital infusions to institutions during the financial crisis. Treasury plans to convert all the preferred shares it holds into AIG common shares, which would raise the government's stake in AIG to around 92% from 79.8% currently, according to people familiar with the matter. Treasury would then sell the shares over time to exit the investment.
The Federal Reserve Bank of New York is separately trying to recoup $19.7 billion in secured debt from AIG and $26 billion from sales of the company's two largest overseas life insurance businesses.
Determining the price at which to exchange its preferred shares for AIG common shares has been a sticking point in strategy discussions, people familiar with the matter say.
Converting at a discounted price could position taxpayers to reap a profit, but it also could put pressure on the stock price, making it harder for the government to sell its shares. Converting at a higher price—such as one above the current market price for AIG shares—would result in the government taking a smaller stake in AIG and would potentially generate profits for private shareholders at the expense of U.S. taxpayers.
Treasury officials, including chief restructuring officer James Millstein, have told company officials they don't want to set a price that would present a bonanza for hedge funds or other private investors including former chief executive Maurice R. "Hank" Greenberg, according to people familiar with the matter.
"I think that's disgraceful to say they don't want me or shareholders to make money," said Mr. Greenberg, AIG's longtime leader who left in 2005 amid an accounting probe.
Mr. Greenberg remains one of the company's private shareholders and most-vocal critics of AIG's government bailout.
He also challenged the view, held by some federal officials, that it will take around a year and a half for the U.S. government to completely dispose of its stake.
"I think it's going to take years, maybe a decade or more, for [the government] to sell down over 90% of the company," Mr. Greenberg said in an interview.
"As soon as they try to sell the stock it will go down," making further sales more difficult, he predicted on Wednesday.
Analysts acknowledged Treasury's dilemma.
"They don't want to damage the stock yet again, as that could hurt the company's value and introduce additional uncertainty, but they also cannot look like they are protecting private shareholders," says Angelo Graci, an analyst at Chapdelaine Credit Partners in New York. He says that many steps that AIG and the government have taken in the past two years have been aimed at improving AIG's value in the eyes of investors, to facilitate future sales of the government's shares.
On Wednesday, AIG shares closed up 13 cents to $37.45 a share.
Behind AIG and government officials' optimism is what they see as an improving outlook for the insurance businesses that will form the core of the company after it completes sales of its major overseas life-insurance units and non-core assets in the coming months.
AIG and Prudential Financial Inc. are expected to announce as soon as Thursday a sale to Prudential of two Japanese life-insurance units for a combined $4.8 billion, according to a person familiar with the deal.
AIG is holding on to a global property- and casualty-insurance business and a U.S. life-insurance and retirement-services business, both of which were hit hard by customer and employee defections in the wake of the bailout two years ago, but have since stabilized in some part.
The government's ability to sell its AIG shares will depend on how a large number of outside investors view AIG's value as a smaller insurance company, and their willingness to invest in an entity that will be majority owned and controlled by the government for some time.
The company has a relatively small shareholder base which holds $5 billion worth of shares, and few equity analysts have been covering AIG since its 2008 government bailout. AIG and its representatives also need to convince major credit-rating firms that the company can achieve a strong rating on its own without government support.
