Towns May Seek to Ease AIG's Government Bailout Terms
Sept. 21 (Bloomberg) -- American International Group Inc.’sU.S. rescue package, revised three times in the past year, wouldbe eased again under a proposal being pushed by the leader ofthe House Oversight and Government Reform Committee.
Representative Edolphus Towns may start talks with TreasuryDepartment and Federal Reserve officials about the plan fromMaurice “Hank” Greenberg, the former AIG chief executiveofficer, said a committee aide. Greenberg visited Towns, the NewYork Democrat who leads the committee, on Sept. 17, according tothe staffer, who declined to be identified because the meetingwas private. AIG surged 21 percent in New York trading.
“I’ve directed the committee staff to take a look at HankGreenberg’s proposal to restructure the debt, because I think itis something to which we should give serious consideration,”Towns said today in an e-mailed statement. Congress should helpAIG recover “and that means looking at a number of options,including restructuring the federal loans.”
AIG, rescued a year ago with a government lifeline thatswelled to $182.5 billion, overhauled management last month,naming Robert Benmosche CEO and Harvey Golub as chairman.Benmosche has said he won’t be rushed by regulators into sellingassets at unfavorable prices to repay the U.S. and that he willseek advice from Greenberg, who built AIG over 38 years into theworld’s largest insurer before being forced to retire in 2005.
Credit Line
Greenberg’s proposal includes cutting the government’sstake in New York-based AIG from almost 80 percent, trimming theinterest rate on loans, and giving the firm more time to repaydebt, said the aide. AIG is charged the three-month Londoninterbank offered rate plus 3 percentage points on a Fed creditline, which it has four years to repay. The original credit linewas for two years and charged a higher interest rate.
AIG rose $8.49 to $48.40 at 4 p.m. in New York StockExchange composite trading. The stock has more than tripledsince the end of July. Benmosche, 65, said last month that AIGwill repay its U.S. debts and “we hope we will be able to dosomething for our shareholders as well.” Cathy Seifert, equityanalyst at Standard & Poor’s, raised her recommendation on AIGto “hold” today on prospects the rescue may be revised.
The insurer is “open to constructive efforts by Mr.Greenberg or others that assist the company in restoring valueto shareholders and repaying the taxpayer,” said Mark Herr, aspokesman for AIG, in an e-mailed statement today.
Deborah Kilroe of the Federal Reserve Bank of New York,Treasury’s Meg Reilly and Beth Dozier, a spokeswoman forGreenberg, declined to comment.
‘Long-Term Solution’
Greenberg, 84, has called for delaying asset sales andrestructuring the bailout in regulatory filings and mediaappearances, including a Sept. 15 interview on CNBC.
Towns, 75, said regulators have pressured AIG to liquidatethe company at “fire-sale” prices. “What’s the rush if we canget a better return on our money a few years down the road andsave a major company and thousands of jobs?” he said.
Representative Brad Sherman, a California Democrat on theHouse Financial Services Committee, said he “couldn’t imagine”that his committee would support a revised rescue.
“The effort is clear: Take more risks with U.S. taxpayerdollars,” Sherman said in an interview. “If there are profitsto be made, they go to enormous bonuses for executives and bigmoney for Greenberg. If there are losses, they’re borne by thepeople in my district and other districts.”
Asset Sales
AIG has struck deals to sell more than two dozen assets fora total of about $9.8 billion since its rescue last year,including a U.S. auto insurer, a Japanese office tower and astake in reinsurer Transatlantic Holdings Inc. AIG has beenunable to sell assets including its plane-leasing unit.
“AIG’s ability to restructure its business and repay thegovernment is unclear at this time,” the U.S. GovernmentAccountability Office said today in a report. Federal assistance“has helped stabilize AIG’s financial condition,” the GAO saidin the report.
Edward Liddy, who took the CEO and chairman roles afterAIG’s initial September 2008 rescue, told employees in his firstmonth that he planned to divest units before they lost value,saying that “every day we don’t do something, it will hurtus.” He initially expected that AIG could repay the U.S. early.
Liddy said in October that AIG would divest most businessesexcluding property-casualty insurance. He later reacted to thedifficulty in selling assets by saying AIG would hand overstakes in two of its biggest non-U.S. life insurance units topay down the Fed credit line by about $25 billion.
‘Moral Hazard’
“We’re still looking to get paid back, and this mayimprove that possibility,” said Bill Bergman, an analyst atMorningstar Inc. “There are reasons to be concerned; this is aninstitution that probably should have been closed a year ago.There’s a moral hazard issue from the long-term perspective: Arewe laying the basis for future problems?”
Golub, the former American Express Co. CEO, also visitedTowns last week to help repair AIG’s relations with Congress,the aide said. Liddy had been grilled by lawmakers about bonusesduring congressional hearings and reported the biggest quarterlyloss of any U.S. corporation. Liddy stepped down last month.
Golub, 70, told Towns that he expected AIG will still be alarge company after repaying its debts, the aide said. Golub wasconcerned about retaining employees who may be lured to rivalsthat face fewer compensation restrictions, said the staffer.
Near Collapse
AIG was pushed to the brink of failure last year aftertrading partners demanded billions in payments on derivativestied to mortgage securities.
The Fed and Treasury said in a joint statement on March 2,the date of the last rescue, that “the long-term solution forthe company, its customers, the U.S. taxpayer, and the financialsystem is the orderly restructuring and refocusing of thefirm.” Stabilizing the company “will take time and possiblyfurther government support, if markets do not stabilize andimprove,” the regulators said.
Greenberg, who controls one of the biggest stakes of AIGshares, had been locked in legal disputes with the insurer sincethe company’s board pushed him out in 2005 during a probe intoreinsurance by then-New York Attorney General Eliot Spitzer.After Benmosche started as CEO, AIG said disputes would besolved in arbitration.
The insurer’s profit in the second quarter was its firstsince 2007. AIG had lost more than $100 billion during theprevious six quarters.
The company’s bailout includes a $60 billion Fed creditline, a Treasury Department investment of as much as $70billion, and $52.5 billion to buy mortgage-linked assets. AIGowes more than $39 billion on the credit line as of last week,and has tapped the Treasury for more than $40 billion.
To contact the reporter on this story:Hugh Son in New York at hson1@bloomberg.net
Last Updated: September 21, 2009 16:36 EDTSource: Bloomberg
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