Fed Gets $9 Billion if MetLife Buys AIG Subsidiary
Jan. 21, 2010 – Reports of a pending sale of a lucrative, Asian-based life insurance unit to MetLife by the American International Group (AIG) could mean U.S. taxpayers will recoup up to $9 billion of their involuntary rescue of the nearly bankrupted insurance giant.
Several recent news reports claim AIG nearly has secured a deal to sell its Delaware-based Alico life insurance unit to MetLife for up to $15 billion. Although headquartered in the United States, the American Life Insurance Company (Alico) primarily does its business overseas in 50 nations and is one of the largest life insurance companies in lucrative, emerging Asian markets. A deal likely will be finalized by the end of February, according to recent reports in the Wall Street Journal and New York Times.
AIG’s current top executive, Robert Benmosche, previously was the chief executive officer for MetLife. Benmosche has said he would not use his former position at MetLife to AIG’s advantage, but MetLife is one of the few companies with sufficient assets to obtain the capital necessary for such a large transaction. Industry analysts say $15 billion would be a large amount to pay for a company valued at about $4 billion in 2008, but Alico has a large share of lucrative emerging life insurance markets in China and other parts of Asia.
If MetLife does purchase Alico from AIG, the Federal Reserve Bank of New York would get about $9 billion as partial reimbursement for the taxpayer-funded bailout of the nearly bankrupted insurer in 2008. AIG would retain the remaining $6 billion.
The $9 billion would be used to buy back preferred shares of AIG stock that the federal government received as collateral for rescuing the ailing insurer in 2008. AIG officials also would allocate $16 billion to the Federal Reserve Bank of New York from the proceeds from the expected initial public offering of AIG’s Asian-based life insurance unit, American International Assurance (AIA), on the Hong Kong stock exchange later this year.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials last year agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Under the new plan, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts.
AIG is attempting to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.
AIG’s CEO Says At Least Two Years to Repay Taxpayers
Dec. 21, 2009 – The timeline for ailing insurer American International Group (AIG) to repay its debt to U.S. taxpayers continues to be extended after its top executive recently told the Financial Times of London it would take at least two years for the firm to repay its debt incurred through the $700 billion federal Troubled Asset Relief Program (TARP).
Soon after the federal government stepped in with an initial $85 billion, taxpayer-funded rescue package in September 2008, AIG’s then-chief executive set a one-year goal to raise funds to repay taxpayers for their involuntary rescue of what once was the world’s largest insurance company. But AIG Chief Executive Officer Robert Benmosche last week told the Financial Times of London AIG will take at least two years to repay funds obtained through the TARP program.
Federal lawmakers initially created the TARP fund to relieve firms of toxic assets mostly tied to various mortgage markets. But after heads of several large firms, including Citigroup, General Motors, GMAC, Bank of America and AIG, accepted TARP funds, federal officials enacted highly restrictive measures and forced the resignation of some company heads, forcing officials at many firms to rethink their participation in the program. Bank of America recently repaid the $45 billion the financial firm owed in TARP funds.
AIG has access to up to $182.5 billion in TARP funds and owes about $150 billion to U.S. taxpayers. But instead of trying to repay the funds this year, Benmosche says U.S. taxpayers stand a better chance of recouping their involuntary rescue funds over time than if the company continue attempting to sell its assets during a down market.
“The more time we [have], the greater the probability we’ll pay back all of [the loan],” Benmosche told the Financial Times. “Our goal is to pay back all of it.”
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Under the new plan, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts.
AIG attempted to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year, but a combination of tightened global credit markets, a shortage of qualified buyers and decreased market values during a global economic downturn have caused the firm to fall short of its lofty goal. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.
AIG has raised more than $4 billion through the sale of several of its subsidiary units. Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.