Obama's AIG Restructuring Leaving Best Bits to AIG, Not US Taxpayer

http://www.nakedcapitalism.com/2009/03/aig-restructuring-leaving-best-bits-to.html

I had refrained from commenting much on the latest iteration of retrading AIG's deal with Uncle Sam, save to observe that each of its predecessors had resulted in an arrangement more favorable to AIG, and I saw no reason to assume this time would be any different.

One of the features of this revamp was to give the US a bigger stake in certain operating units, presumably the more valuable ones. That assumption appears dead wrong. Per John Hempton:

There is only one piece of AIG that is still highly valuable – which is the core American P&C business (including some auto businesses). AIG has for instance merged AIG Direct into its fully owned 21st Century – a California Insurance Company. That business is still a very effective competitor – but their website no longer mentions those three letters (AIG) – I guess to protect the value of that business.

Life companies (ALICO etc) are not anything like as valuable as they were.

I posited in this post that the Feds were taking their interest in direct ownership of the valuable bits of AIG – so that they could let the mothership go.

I was wrong. The Treasury announcement contains this phrase:

The Revolving Credit Facility will be reduced in exchange for preferred interests in two special purpose vehicles created to hold all of the outstanding common stock of American Life Insurance Company (ALICO) and American International Assurance Company Ltd. (AIA), two life insurance holding company subsidiaries of AIG. AIG will retain control of ALICO and AIA, though the New York Fed will have certain governance rights to protect its interests. The valuation for the New York Fed’s preferred stock interests, which may be up to approximately $26 billion, will be a percentage of the fair market value of ALICO and AIA based on valuations acceptable to the New York Fed.

If the government wanted to protect taxpayers it would take control of the really valuable bits of AIG through this sort of structure.

They are not doing so.

more...

http://blogs.wsj.com/deals/2009/03/02/aig-the-rest-of-the-story/

Repayment of the FRBNY credit facility: AIG will transfer to the Federal Reserve Bank of New York (FRBNY) (or to a trust for the benefit of the FRBNY) preferred interests in American Life Insurance Company (ALICO) and American International Assurance Company, Ltd. (AIA) in return for a reduction in the outstanding balance of up to $26 billion of the FRBNY senior secured credit facility.
Instead of getting back the roughly $40 billion the U.S. already loaned AIG in cash (this is separate from the $40 billion equity investment mentioned above), it will receive preferred stakes in “special purpose vehicles.” Those hold AIG’s hard-to-value oversees life insurers, which the Fed now believes are worth at least $26.5 billion.