Insight, analysis & opinion from Joe Paduda

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Aug
27

Whatever happened to AIG?

After this spring’s ugly display of ignorance in the form of public pillorying of undeserving AIG personnel, what happened to AIG?
Well, hard as it is to believe, mostly good stuff. There was a big push to sell assets in the spring, a push that, for very good reason, didn’t result in many sales. That’s a good thing, as buyers were looking for fire-sale prices, and for a while it looked like the Feds were eager to dump as much of AIG as possible regardless of the financial consequences. It’s our good fortune the sales didn’t happen then.
To date the company has sold off assets amounting to about $8 billion, while also reporting solid financial results for the last quarter – and in anybody’s book, $1.8 billion is pretty solid.
The company that brought down the giant, AIG Financial Products, is slowly being unwound, with credit derivative exposure reduced by some seventeen percent since January 1 of this year – but it’s still $1.3 trillion.
And the new CEO promises that taxpayers will be reimbursed, and AIG will arise again. At least the stock markets took heart, pushing the company’s value up some 30% on the strength of not much more then Benmosche’s cheerleading.
Earlier this year, AIG sold auto insurer 21st Century to Zurich’s Farmer’s division for $1.9 billion, got a quarter-billion dollars for AIG Private Bank Ltd. and $680 million for AICredit, while netting $1.1 billion from the public offering of shares in reinsurer Transatlantic Holdings Inc.
Still on the books are American International Assurance Co. (valued at $25 billion) and American Life Insurance Co., ($18 billion) and Chartis’ book value is about $38 billion. And according to Reuters, AIG’s Taiwan life unit Nan Shan Life “could attract a bid of about $2 billion”, and AIG is in talks to sell two Japanese life insurers, AIG Edison Life Insurance Co and AIG Star Life Insurance.
One of the pricier assets still on the block is airplane owner International Lease Finance Corp, which has been valued anywhere from $2.5 to $8 billion. The tight credit markets appear to be the obstacle to a deal for now.
Against those assets, AIG owes the taxpayers about $88 billion as of June 30, 2009.
Meanwhile, the core insurance business has a new nameChartis – and a bit of a new attitude. The Chartis folks I’ve spoken with are happy to be out, away and on their own, without the derivative mess looming over them like the merchant of death. There are still lots of hard feelings, but less handwringing and more of a ‘we’ve got work to do’ attitude. And internally they are getting the work done, making progress on a number of fronts particularly in underwriting and claims.
I’d expect to see Chartis go to an IPO in the next couple of years, after the credit markets loosen up and valuations start to climb. While taxpayers may not get all of our money back, a little patience and a lot of hard work on the part of AIG folk past and current may minimize the damage.
Here’s hoping that those same politicians who insulted, degraded, denigrated, and verbally assaulted AIG execs back in the spring are adult enough to commend these folks if and when they deserve it.
Holding your breath?


Joe Paduda is the principal of Health Strategy Associates

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