AIG and U.S. Set Faster, Riskier Exit Path
When Americans go to the polls for mid-term elections in November, the state of the financial system and the economy will be a big issue.
The Troubled Asset Relief Program, set up amid the 2008 financial crisis to shore up the industry, expires on Sunday.
Benmosche said the timing of the deal helps AIG avoid another “firestorm of negative publicity.”
The Treasury will get about 1.66 billion AIG common shares, worth $64.9 billion at Thursday’s closing share price, in exchange for the $49.1 billion of AIG preferred shares and accrued interest it now holds. The strategy is similar to one the government has been following in exiting Citigroup Inc.
Benmosche said the Treasury took the time to understand the value of AIG’s business, book value and earnings potential before making the move, which makes for an easier exit as the market for common shares is more liquid.
The Treasury had estimates ranging from a year to 18 months for selling down its stake in AIG once the exchange is completed, Benmosche said.
Former AIG CEO Maurice “Hank” Greenberg, who has been a critic of the bailout terms, told Reuters Insider he was unhappy with the plan and that the conversion creates “a huge overhang” on the stock.
“What’s going to drive the stock up? Their job is not to hold it; it is to sell it,” Greenberg said.
The plan also calls for AIG to repay $20 billion under a Fed credit facility, using funds from operations and disposal of assets like its Asian life insurance businesses — American Life Insurance Co (Alico) and American International Assurance (AIA).
The exchange of the Treasury’s preferred stock will not be executed until the Fed credit facility is repaid in full. Morgan Stanley has been advising the Fed throughout the restructuring.
The Fed also owns preferred shares worth about $26 billion in AIA and Alico. AIG plans to draw down up to $22 billion from an existing Treasury equity line to buy out part of that stake, and then transfer the shares to the Treasury.