The fortunes of AIG appear to be on the rise. On Thursday, August 28, 2009, AIG’s stock closed the day at $47.84, a gain of 27 percent from the previous close, $37.69. Mary Williams Walsh, AIG Rises, and Many Ask Why, New York Times, Aug. 28, 2009. This development has engendered divergent responses. The New York Times quotes William T. Fitzpatrick, an equity analyst at Optique Capital, who poses the rhetorical question, “Who would want to buy a stock that is still 80 percent owned by the government?” Id. Mr. Fitzpatrick offers the explanation that, “The risk appetite has returned to the marketplace,” so that investors are looking to “get the money back they lost over the last year.” Id.
As with so much economic news, AIG’s fortunes are on closer inspection rather enigmatic. The federal government’s bailout package to AIG totaled $182.5 billion, which dwarfs the market value of AIG’s stock, which even with its recent gains totals $6.4 billion. Id. What is more, following a 20-for-1 reverse split in June, the shares of AIG stock are concentrated in a few hands. And Edward M. Liddy, the company’s departing chief executive has cautioned investors to “expect continued volatility.” Id.
In an interview with the Wall Street Journal, Chief Executive Robert Benmosche announced that AIG is reversing course on its plans to sell assets to repay the government. The WSJ reports that he is willing to “wait as long as three years to offer stakes in two multi billion-dollar foreign units that the insurer had been racing to spin off.” Matthew Karnitschnig and Liam Pleven, Benmosche in No Hurry to Sell Off AIG Assets, Wall Street Journal, Aug. 28, 2009. Benmosche explained that the company would not be able to repay the government, even if it divested itself of all of its assets. Id. The newspaper quotes him as explaining that, “The sum of the parts are a little below the whole.” Id.
Benmosche further remarked that AIG had made no further decision as to whether to divest itself of its global property/casualty insurance business. Id. He also explained that over the next six months, he will evaluate whether to retain other businesses, such as the International Lease Finance Corporation. Id. Pointedly, he was quoted as saying “The feeding frenzy on this company” is “over.” Id.
Perhaps. But investors are sending mixed signals. Id. The Journal reports that “AIG’s debt issues trade at just more than half of what investors would expect at maturity and yield in the 12 percent neighborhood—signs of distress—while the preferred trades at less than a fifth of its face value yield nearly 50 percent, also a sign investors are worried about recovery.”
Notwithstanding Bennmosche’s remarks, AIG is proceeding with the divestiture of a few of its Asian holdings. Bloomberg reports that a “group led by Primus Financial Holdings Ltd. may bid between $1.2 billion and $1.4 billion for AIG’s Taipei-based Nan Shan Life Insurance Co.,” while “Cathay Financial Holdings Co. may bid at least $1.5 billion.” Cathy Chan, AIG May Get Less Than $2 Billion in Taiwan Unit Sale,” Bloomberg.com, Aug. 28, 2009.
AIG is also reported to have used proceeds from some recent asset sales to shore up its property-casualty operations rather than repay the U.S. Hugh Son, Treasury Document Called AIG Investment ‘Highly Speculative,’ Bloomberg.com, Aug. 28, 2009. This includes the retention of $2.4 billion from the sale of auto insurer 21st Century to Zurich Financial Services A.G. and from the public offering of reinsurer Transatlantic Holdings, Inc. Id.
AIG has also tapped $1.2 billion from its most recent Treasury credit facility “to shore up its U.S. life insurance and retirement services operations.” Id.
It is also of note that documents recently obtained from the U.S. Treasury in a Freedom of Information Act request by Judicial Watch include a Treasury PowerPoint in which the AIG bailout was characterized as “highly speculative.” Id. The FOIA documents are available by clicking here.
Bloomberg quotes Andrew Williams, a Treasury Department spokesman, as stating that the “highly speculative” phrase was in a draft created by the Bush Administration. He further states that the Department is “confident that Treasury’s investment in AIG has helped strengthen the institution for the greater stability of the American economy and appreciates Robert Benmosche’s commitment to the objective of repaying us in full.” Id.
