New York —
The company said it will refashion itself into a global property/casualty insurer with a stake in an overseas unit that sells life policies in China, Korea and India, AIG CEO Edward Liddy said today in a conference call with analysts.
"We won't exactly be the AIG of old, but we'll have a very secure position," Liddy added. "This is going to be a formidable company that emerges from this."
Selling life insurance operations is a reversal for Liddy, who previously said staying in that business was a priority. The firm has already borrowed about $61 billion of the credit line, two weeks after agreeing to give the U.S. a majority stake in exchange for the loan.
Liddy said he prefers to sell "large slices" of AIG to "brand-name" companies because that strategy will hasten divestitures and benefit customers and employees. He also will try to "monetize" assets in AIG's credit-default swap portfolio, which are included in a subsidiary that hobbled AIG with more than $25 billion in writedowns.
Liddy needs to reassure clients and employees of AIG's long-term prospects while showing investors and the Treasury he can sell units fast enough to pay back debt, the Bloomberg report said. Liddy, appointed by the government to run AIG, helped oversee the spinoffs of Allstate Corp., Discover Financial Services, real estate broker Coldwell Banker Corp. and securities brokerage Dean Witter when he was an executive at retailer Sears Roebuck & Co.
Housing Slump
AIG almost collapsed last month from credit downgrades and writedowns tied to the U.S. housing slump. The insurer posted about $18.5 billion in net losses over three quarters, and its stock plunged more than 90% this year.
The insurer is working on a "number of alternatives" for the unit that sold credit-default swaps, the protection for debt investors that plunged in value as the securities they guaranteed declined, AIG said in a statement.
AIG's property/casualty units insure planes, shipping, factories and homes and protect commercial property owners against terrorist attacks. Liddy said he may sell AIG's auto insurance operation in the U.S.
Reinsurance, Airplanes
The company also owns a home lender, reinsurer Transatlantic Holdings Inc., and International Lease Finance Corp., the largest lessor of planes to airlines. AIG received 4.3% of its revenue last year from airline leasing. Second-quarter operating income from the unit rose 85% to $352 million as the company expanded its fleet and charged more to rent planes.
Bloomberg noted that competitors may want to buy units that remained profitable as AIG was overwhelmed by losses at units that originate, insure and invest in home loans. Billionaire Warren Buffett told CNBC Sept. 24 that his Berkshire Hathaway Inc. may consider buying some AIG businesses, without naming which ones. AIG operates in more than 100 countries.
Former CEO Maurice "Hank" Greenberg also is reportedly interested in buying assets from AIG. Greenberg, who controlled the largest block of AIG stock before the takeover through personal holdings and investment firms, cut the stake to just below 10% of the common shares last month. The reduction may mean less scrutiny from the New York Insurance Department, should he try to purchase subsidiaries, said department spokesman David Neustadt.
Looking for Buyers
Munich Re also is reported to be " ;interested" in AIG assets, CEO Nikolaus von Bomhard said yesterday in a Bloomberg Television interview. The Munich-based reinsurer said it's seeking to expand its primary insurance business.
Toronto-based Manulife Financial Corp. is looking at the Asian assets of AIG, the Globe and Mail reported last week. Vienna Insurance Group and Tokio Marine Holdings Inc. also may be interested in AIG units in their regions, said insurance analyst David Bradford of Advisen Ltd.
INN reported earlier this week that AIG has already agreed to sell its 50% ownership of London City Airport to help raise cash.
Blackstone Group LP and JPMorgan Chase & Co., both based in New York, are coordinating the sales, AIG said.
AIG agreed to payments for borrowed amounts on the two-year government credit line of 8.5% plus the three-month London interbank offered rate (LIBOR). On the unused balance, the insurer will pay 8.5%. The company also has to pay a $1.7 billion one- time fee on the loan. Three-month LIBOR rose to 4.33% from 2.88% the day the deal was announced as financial institutions hoard cash to meet future funding needs amid concern more companies will collapse.
Preferred Stock
AIG said it will issue preferred stock worth 79.9% of the company to a trust of the U.S. Treasury. The shares will be issued without investor approval because delays would "seriously jeopardize" AIG, the firm said. The U.S. gets the stake "even if the credit facility is repaid in full," AIG said in a Sept. 26 regulatory filing.
The $1 trillion-asset company has about $48.7 billion in hard-to-value holdings, and had 116,000 employees as of Dec. 31, 2007, compared with 97,000 two years earlier. In addition to selling life insurance and protecting property, AIG owns or manages about $25.7 billion of real estate including residential, industrial and retail properties. The company had private equity and hedge fund holdings of about $30 billion as of June 30, 2008.
Sources: Bloomberg.com, CNNMoney.com
