Maurice "Hank" Greenberg, American International Group Inc.'s former
chairman and largest shareholder with a roughly 10.4% stake, continues
to cry out for a fair shake for his former company from the Federal
Reserve, but the insurer's soon-to-be-largest stakeholder doesn't seem
to be listening.
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Greenberg in a letter to AIG chairman and CEO Edward Liddy attached to
a late Thursday SEC filing proposed that AIG be given access to the
lower cost of capital available through the Fed's now wide-open
discount window, which would allow AIG to borrow well below the rate of
its punishing $85 billion government loan, which carries nearly a 12%
interest rate. Greenberg also suggested that the outstanding balance of
the government's loan be converted into preferred shares, in which the
government would receive dividends.
Greenberg basically wants AIG to have
access to a TARP-like plan like most other financial services firms, but everybody else did
not come begging at the Fed's doorstep for $85 billion so they wouldn't
implode. Greenberg does not seem to subscribe to the "beggars can't be
chosers" theory.
Greenberg argues that AIG will be forced to engage in a
fire sale of its assets to cover the Fed loan before it is bled dry by
mounting interest payments. This, all amid tight capital markets. So far, AIG has received limited interest in its assets. All
he wants is the breather that TARP has given other struggling financial
institutions, who have avoided similar fire sales.
But AIG's window to renegotiate terms seems to be
closing as it has reportedly borrowed most of the $85 billion. And this
beggar keeps begging for more. Less than a month after receiving the
initial $85 billion, AIG in early October tapped the Fed for an
additional $37.8 billion.
Under the securities lending agreement,
the New York Fed will borrow up to $37.8 billion in investment-grade
securities from AIG subsidiaries in return for cash collateral. And AIG
in a Thursday 8-K filing said it applied with the Fed to participate
in a commercial-paper funding facility in which it will issue $21
billion in commercial paper to refinance its outstanding commercial
paper as it matures, meet capital needs and make prepayments under the
$85 billion loan.
So, in laymens terms AIG is borrowing from the
government to pay back the government. - Michael Rudnick
Michael Rudnick is a senior reporter for The Deal.
