Insurance titan American International Group is considering forming a separate company to hold billions in securities that have dogged its balance sheet for the past several quarters, The Post has learned.
According to sources familiar with the matter, the largest US insurer is working with investment bank JPMorgan Chase to arrange what is known in Wall Street lingo as a “good bank/bad bank,” or in AIG’s case a “good insurer/bad insurer,” structure.
The arrangement would enable AIG to offload some of its more toxic assets from its balance sheet.
Sources say a plan has not yet been cemented but a scenario similar to what that Swiss investment bank UBS used to rid itself of some of its troubled real-estate securities is being mulled by AIG officials, said one Wall Street official.
The official characterized the discussions as very serious and described the amount that AIG plans to offload as “dwarfing” similar structures done in the past. However, a timetable and other details, including how much AIG would have to put up to fund the good insurer, could not be learned.
Calls to AIG representatives were not returned, and a JPMorgan spokeswoman declined to comment.
One of the world’s most prominent insurance companies, AIG has been whacked by its exposure to subprime securities that have caused it to record losses in the past three quarters and led to the ouster of Martin Sullivan as CEO in June. Board member Robert Willumstad was tapped to replace Sullivan.
In the June quarter, AIG reported a $5.36 billion loss compared with a $4.3 billion profit a year earlier, and analysts are predicting similar pain for the third quarter.
Credit Suisse analyst Thomson Gallagher estimates that AIG will see a third-quarter loss of $2.4 billion, losing 86 cents from an earlier estimate of a profit of 13 cents.
“We are conducting a comprehensive review of all AIG’s businesses with the objectives of improving results, reducing AIG’s risk profile and protecting our capital base,” Willumstad said in June, noting that a progress report would be released Sept. 25.