The molasses-like pace of American International Group’s breakup got a jumpstart last night after Treasury Secretary Timothy Geithner said he’ll work with AIG boss Ed Liddy to unwind the beaten-down insurance giant.
Those comments came as Geithner threw his support behind the AIG CEO, who’s gotten a heavy dose of criticism during the past few days as the public outcry over the company’s payment of $165 million in bonuses grows louder in the wake of the insurer receiving some $170 billion in rescue money.
“As long as he is there, we will work with him on measures to wind down AIG in an orderly way and protect the American taxpayer,” Geithner said in a letter sent to congressional leaders.
AIG for months has been trying to off-load assets in order to repay Uncle Sam, but has been bedeviled both by offers it deems as too low and concerns among would-be suitors that they’d be buying ticking time bombs.
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In addition to trying to unwind the complicated contracts and derivatives that got AIG into the fix it’s in, the company has been trying to dump assets in order to raise cash to pay back the government.
One of the first units AIG considered selling was an aircraft-finance company, but that effort has been stymied by demands among potential suitors for a federal backstop before consummating a sale. And just yesterday, the unit was dealt a setback when Moody’s Investors Service downgraded AIG’s credit rating, along with that of a consumer-finance business.
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Late last month, AIG floated a plan to break itself into at least three entities that would be controlled by the government – one for its Asian business, one for its global life-insurance operations and one for its US units.
Still, amid the fits and starts, there is progress. The company unveiled a plan to spin both its Asian life insurance unit AIA and ALICO, an international life insurance company.
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Also, in the vein of a “good-bank, bad-bank” strategy, AIG this month said it would form AIU Holdings to house its commercial insurance group, foreign general unit and other property and casualty operations.
Much is at stake for Liddy, who was brought in last September by ex-Treasury boss Hank Paulson to run AIG after the bank got its first $85 billion cash injection from the government.
Known as a cost-cutter and restructuring pro, Liddy, who had just retired as chairman of insurance titan Allstate, was widely seen as being the right guy to oversee an orderly dismantling of AIG’s far-flung and intertwined businesses.
However, in the ensuing months both Liddy and AIG have learned the hard way that off-loading businesses nobody wants is easier said than done.
While there has been some interest in AIG’s businesses, most offers have been far too low to make them worthwhile. And as the recession intensifies, it has put the insurer farther behind the eight ball, forcing Liddy a few weeks ago to warn that if low-ball offers continue to come in he might scrap plans to sell off assets.
Adding to the pain is yesterday’s news that the Fed paid $62 billion to unwind credit default swaps with counterparties with a street value of $29 billion.
Matters have been made worse by the fear that the $173 billion Uncle Sam has doled out to bail out the lurching behemoth has not scratched the surface of its toxic-paper liabilities. Some analysts believe the figure could be many times larger.
The unwinding process could take years if not a decade, with forensic accountants attempting to conduct audits into millions of separate credit-default swaps that feature scores of counterparties worldwide.