American International Group Inc. (NYSE:AIG) Edward Liddy will be testifying before the House Committee on Oversight and Government Reform on May 13.
The Wall Street Journal reports that he is expected to explain what he has accomplished so far and
whether taxpayers' investment is "adequately protected." A few questions Liddy will likely here from Congress:
- What have you accomplished so far?
- Will taxpayers be seeing that bailout money returned any time soon?
Liddy has actually accomplished a lot, but it's highly doubtful that money will be returned to taxpayers any time soon.
Liddy is in a precarious position, but he has put forth valiant effort. His title is CEO, which is somewhat misleading given AIG's unique place in the world. With the government the leading stakeholder in the company, he's more like a trustee in a receivership than a traditional CEO -- kind of explains the
$1 salary. He has to juggle both the corporate issues that arise like paying retention bonuses and winding down operations with the concerns of taxpayers and politicians. It is not an easy task, which explains why Liddy has been admired, demonized, grilled, upheld and fed to the wolves at any given moment.
Yet he remains at the company, attempting to gradually de-leverage and perhaps essentially wind-down the company into independently operating businesses. His
strategy has varied over the past year as the economic crisis worsened. The company disclosed plans to place Alico, Philamlife unit and AIA into trusts for eventual
initial public offerings or sales as bidders and financing made the insurer's ability to conduct sales few and far between.
Those assets are getting even harder to sell at valuations that aren't distressed. Other assets, like its mortgage insurer, United Guaranty Corp., might not sell at all, so the insurer may end up winding down the unit.
A spokesperson for AIG told
Bloomberg, "We're talking to a number of prospective buyers and we're considering a number of options, but no decisions have been made."
The unit, which is being examined by McKinsey & Co. for sale, has posted more than $2.8 billion in operating losses since April 2007 and employs about 950
worldwide. But it's the continual losses and the state of the economy right now that have stymied the sale of the unit, which reimburses mortgage lenders when borrowers can't repay and foreclosure fails to cover costs.
The unit was up for sale with several other units to pay off the government's $180 billion bailout package. So far AIG has sold off $4.4 billion in assets.
Meanwhile, there are several other assets that AIG has sold:
However, there are still several sales being finalized:
- AIG's Advisor Group division, housed within AIG's retirement
services division, which consists of three broker-dealers -- SagePoint
Financial Inc. of Phoenix, FSC Securities Corp. of Atlanta and Royal
Alliance Associates Inc. of New York -- could sell for about $200
million. Private equity firms Clayton, Dubilier & Rice Inc. and
Warburg Pincus have dropped out of the bidding for AIG's Advisor Group
division, leaving GTCR Golder Rauner LLC and several new bidders, The
Deal's Michael Rudnick reported. However, the three broker-dealers have lost nearly 14% of their advisers since February.
- The sale of AIG's aircraft
leasing unit, International Lease Finance Corp., or ILFC, could be finished soon. The Financial Times
is reporting that the insurer has received second-round bids from
private equity firms Thomas H. Lee Partners and Carlyle Group, Onex
Corp. and Greenbriar Equity Group, as well as an unidentified third
bidder.As Dealscape
previously noted, ILFC has a book value of $7.5 billion as of Sept. 30,
and bids were supposed to come in at around $5 billion. However, Reuters
is reporting that the unit may sell for under $5 billion. The figure is
not surprising considering AIG needs to repay $100 billion in debt and
does not have the cash to meet debt obligations of $33 billion for
ILFC's operations in 2009 due to the struggling airline business
and loss of its federal commercial paper lending facility after key
credit ratings were cut.The Financial Times reported that the government may even extend AIG
a $5 billion loan to divest ILFC, which should just about cover the
purchase for the private equity firm that decides to buy the unit. The
credit line would come from the $180 billion bailout the government has
already extended to the insurer.
- AIG's asset management business, AIG Investments, could get bids
anywhere between $400 million and $800 million for the $100 billion
portfolio in the division that manages assets for pension funds,
insurance companies and wealthy individuals, said a source close to the
situation. Bidders include Ashmore Investment Management, Hellman &
Friedman LLC, Rhone Group and TA Associates, as well as mutual fund
manager Franklin Templeton and asset manager Southgate Alternative
Investments, according to The Wall Street Journal.
AIG wants to finish the sale by the end of May, but it could run into
trouble if bids sink lower due to valuations of the units.
- The AIG Global Real Estate fund management business has around
$12.4 billion in assets and $5.2 billion in equity capital. The unit could be sold
for about $9 billion. Interested bidders could include BlackRock Inc.
and Blackstone Group LP (which might be a conflict because Blackstone
is advising). Included in that is its Japanese headquarters in Tokyo,
which may bring in more than $1 billion.
- AIG Edison Life Insurance Co. and AIG Star Life Insurance Co. are
also up for sale. Bidders could include: Prudential Financial Inc.,
Manulife Financial Corp., Allianz Group, Aegon NV, Nippon Life
Insurance Co., Tokio Marine Holdings Inc., Gibraltar Life Insurance Co.
Ltd., T&D Holdings Inc. and Manulife Life Insurance Co. The value
is estimated to be around $1 billion.
- American International Group Inc.'s property and casualty division could also be on the block or may spin out into a public entity.
Even with the sales of these businesses, AIG will be short on its payment to the government and it will depend upon the success of AIG's crown jewels Alico, AIA and Philamlife operating as public independent businesses or the eventual sale of these businesses to recover taxpayers money. However, this process could take years. So is "adequately protected' the correct phrase? Maybe, but it's still a gamble. However, there is no doubt that Liddy has accomplished a lot since he took the helm at AIG in September 2008.
- Maria Woehr Also see:
AIG strategy may change if AIU spins outAIG to sell ILFC at fire sale price?AIG asset management sale heats upAIG to Fed: You pay us so we can pay youAIG sells auto insurance asset for $1.9B
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