New York – In the week following the largest bailout in the financial services industry, New York-based American International Group is licking its wounds, as the government and marketplace make moves to salvage and control what they can of the company’s assets.
American Banker magazine reports that major shareholders are pursuing an effort to help pay off the federal government's loan to AIG in time to avoid having Washington take an 80% stake in the company, according to a person familiar with the matter.
Last week the government agreed to lend AIG up to $85 billion to help it avoid bankruptcy in exchange for a right to take a controlling stake in the giant insurance conglomerate.
Hurdles to these shareholders' efforts could be high, reports American Banker, as they—and other investors they may recruit—would have to put up significant sums.
The shareholder group wants to make sure the government gets paid back quickly so that it will not need to take the stake, the person said. This could be accomplished through asset sales that the company is planning and possibly through investments in AIG by large investors such as sovereign wealth funds. The approach could be more beneficial to shareholders than the government deal because it would inject capital in exchange for equity. The government, by contrast, would get equity in exchange for its loan.
Edward Liddy, who was named AIG's chief executive last week as part of the arrangement with the government, said he had no knowledge of the shareholder effort and had no comment. AIG's stock price has fallen more than 90% this year, largely because of losses linked to the mortgage market. The government acquisition is subject to shareholder approval.
Meanwhile, Liddy’s predecessor, Robert Willumstad, has refused $22 million in severance pay from his former employer. Willumstad, who has served on AIG’s board since 2006, found himself at the helm in June, 2008, replacing CEO Martin Sullivan. In a note to his successor, Willumstad is reported to have said he was refusing the pay because he believed he was unable to execute his own restructuring plan.
But across the globe, the reverberations of last week’s shakeup are still being felt. On Friday, Mark O’Dell, AIG’s general manager of its business unit, resigned. Today, AIG announced that Kenneth Juneau, executive vice president and senior regional life executive of AIG's American International Assurance regional office, took over leadership of the unit. In a statement, AIG said that O’Dell’s departure was “in no way related to the recent developments of AIG." Yet anxious policyholders in jammed AIA's offices in an effort to terminate their life insurance policies last week. AIA Singapore, a wholly-owned subsidiary of AIG, is known as the life insurance market leader in . So far, about 2,000 policies were terminated last week, accounting for about 0.01% of the company's total 2 million policies in Singapore, AIA said.
"We are satisfied with the ability of the company to carry on business as usual and to meet new demands even when there are any changes in management," said Monetary Authority of Singapore executive director of insurance supervision Kwok Mun Low in a statement. "MAS's regulatory oversight of AIA and all insurers in is rigorous," said Low. "We urge policyholders not to act hastily to terminate their insurance policies as they may suffer losses from the premature termination and lose the insurance protection they may need."
Sources: American Banker, Clusterstock.com, Tradingmarkets.com
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