By Lavonne Kuykendall Of DOW JONES NEWSWIRES CHICAGO -(Dow Jones)- American International Group's (AIG) chief executive, Edward Liddy, sounded confident Monday that the company's kinder, gentler bailout terms will help the company get back on track.
Not everyone shares his rosy view. Competitors continue trying to poach customers and key employees in AIG's core insurance operations, and the new bailout won't solve the reputational hit that continues to bedevil the huge insurer.
The new $150 billion bailout plan from the government is aimed, among other things, at giving AIG more time to sell non-core businesses to pay off its loan from the federal government. It also reduces the interest cost of the loans, gives the government a $40 billion slug of AIG preferred stock paying a handsome 10% dividend (a rate banks have also been happy to pay for precious government capital), and sets up facilities for dealing with AIG's cash-sapping issues with credit-default swaps and its securities lending operations.
By extending the maturity of $60 billion in government loans as part of the bailout, the new loan terms seek to give AIG more time to sell non-core businesses at better prices.
One rival - who of course stands to gain at AIG's expense - dismissed AIG's plans to right itself. Edmund Kelly, chairman and chief executive of Liberty Mutual, a commercial insurer, said during his company's earnings conference call Monday that AIG is focusing so much on its bailout that it is "doing some very stupid things in the market" regarding pricing in some areas.
"More than likely it is because the creditors committee who are managing the company are more concerned with the interference with the government and capital, and are paying little attention to actually what is going on in the trenches," Kelly said. Liberty Mutual competes with AIG in specialty casualty and large commercial accounts. An AIG spokesman didn't immediately return a phone call asking for comment.
During AIG's earnings conference call, also on Monday, Liddy said the company was not cutting rates to keep business "despite the plans of certain competitors and despite competitors' attempts to restrict our access to business and to deprive customers of choice."
Liddy said during the conference call Monday and on a CNBC interview afterward that he planned to announce "several key dispositions" by the end of the year, with closings scheduled for "30, 60, 90 days later."
Buyers are coming from the 75 to 100 potential buyers who have already contacted the company, and the sales will put the troubled insurer on track to pay back a $60 billion Treasury Department loan and restructure itself as a global property casualty insurer.
An insurance consultant who has worked on acquisitions said that selling a complex insurance company is tricky and time consuming and he questioned whether Liddy could make substantial sales in such a short time.
In the meantime, he said key AIG employees are being wooed by rivals.
"That stops me from buying the company," said Andy Barile, an insurance and reinsurance consultant in Rancho Santa Fe, Calif. "I can take the top three people and start them in their own business instead."
Given Liddy's background as a former chief executive of Allstate Corp. (ALL) the largest personal lines insurer, Barile suggested that might be a quick sale for Liddy.
"Why hasn't he sold it yet?" Barile said.
Barile suggested that other property/casualty companies, which Liddy has called core, might attract buyers despite AIG's unwillingness to sell. So many questions remain unsettled that it is uncertain that AIG will be able to quickly execute its plan to keep its commercial property/casualty business and sell off the rest, keeping some interest in its international life insurance business.
AIG might need to go back for more than the expanded $150 billion bailout if losses continue to grow and if its insurance businesses continue to underperform, said analyst Donn Vickrey of Gradient Analytics Monday. "At the end of the day, they will have to sell off a big chunk of their property/casualty businesses" to raise the capital they will need to retire their loans, Vickrey said.
The federal government's newly revised AIG bailout rewrites the original plan put in place five weeks ago by relaxing the terms on the insurer, allowing AIG to sell some of its subprime mortgage exposure to the government and participate in federal equity investments.
The interest rate on the federal loan extended to AIG has been eased to the London interbank offered rate plus 3%, from Libor plus 8.5%. The loan's term was also extended to five years from two.
In addition, the New York Federal Reserve will lend $30 billion to a new facility - toward which AIG will also contribute $5 billion - to buy up to $70 billion in collateralized debt obligations that AIG insured through credit-default swaps. AIG insured many billions of CDOs, securities that combined various types of loans, of which sliced-and-diced portions were sold. The CDOs' tumbling values were the primary source of AIG's woes and pushed the company to the brink of bankruptcy.
The New York Fed will also lend up to $22.5 billion to an entity, and AIG will contribute $1 billion, that will buy residential mortgage-backed securities from AIG's securities lending portfolio. This purchase will relieve AIG of the need to post collateral on the portfolio.
Meanwhile, AIG reported a third-quarter net loss of $24.47 billion, or $9.05 a share, compared with year-earlier net income of $3.09 billion, or $1.19 a share. Excluding capital losses, the red ink amounted to $9.24 billion, or $3.42 a share.
Insurance credit ratings agency A.M. Best affirmed AIG's financial strength and issuer ratings Monday and removed the company's ratings from review, giving a stamp of approval to the plan.
A Nikkei report Monday said that the planned sale of three AIG Japanese life insurance companies has been held up by weakened finances of would-be buyers. Life insurers have been hard-hit by their own investments in financial services companies and real estate holdings.
On Monday, Fitch Ratings slashed its ratings on American International Group Inc.'s (AIG) consumer-finance and credit-insurance unit, saying its long-term support from the insurance giant is in question as the business will likely be sold as part of AIG's streamlining.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com
(Kevin Kingsbury contributed to this report)
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(END) Dow Jones Newswires
November 10, 2008 16:59 ET (21:59 GMT)

Publié le 10 novembre 2008 Copyright © 2008 Dowjones