AIG restructuring: Can taxpayers recoup bailout funds?
The bailed-out insurer AIG is restructuring. This gradual make-over holds the best hope for US taxpayers to recover bailout money, say analysts.
Treasury Secretary Timothy Geithner testified before the House Oversight Committee at a Jan. 27 hearing on bailed-out insurance giant AIG. The company is now restructuring.
pablo martinez monsivais/ap
“Long live AIG.” That may not be what people want to hear from a firm that received one of the costliest and least popular federal bailouts since 2008. But that unofficial slogan captures the outlook of the insurance firm and, in effect, the view that US taxpayers are being asked to share as its majority owners.
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In the past year and a half, the federal government has pledged about $180 billion in bailout money to American International Group Inc., although the firm has tapped less than that so far. AIG owes at least $70 billion.
Despite lots of talk by government officials about “winding down” the giant insurer, what’s been happening instead is a slow restructuring.
It’s true that the firm is trying to sell off assets – the most prominent example coming earlier this month in a $35.5 billion sale of its Asian insurance arm to Prudential PLC. And on Monday, AIG announced plans to sell another overseas unit, Alico, to MetLife for $15.5 billion. But in its latest quarterly report, AIG blended caution flags – including that it might ask for more government aid – with confidence: “We are taking the right steps to regain our stature as one of the most respected and diverse property-casualty operations in the world….”
Thus, AIG’s strategy is revival, not full-scale dismemberment. According to some industry analysts, this gradual make-over is the course that holds the best hope of recouping for US taxpayers the bailout money. (Read here to learn about analysts' predictions of which companies would and would not pay back bailout loans.)
But many hurdles lie ahead. And in the process, the case of AIG continues to symbolize some of the most troubling lessons of the financial crisis. One is that while bailouts can end a financial panic, they don’t necessarily fix underlying problems – either in the broad financial system or within individual firms.
“[AIG] has been bailed out entirely…. Why isn’t it generating an enormous profit?” asks William Black, a financial expert at the University of Missouri in Kansas City.
The answer, he worries, may be that the firm remains riddled with problems despite all the infusions of government support. (Read here to learn about the Obama administration's defense of the AIG bailout.)
AIG’s troubles aren’t confined to the non-insurance activities known as derivatives trades – the investment contracts that, because of their ties to low-quality mortgage investments, pushed the firm to the brink of bankruptcy in September 2008.
In the latest quarter, for example, AIG lost money on its general insurance business, due to the need to set aside reserves to cover any additional losses. Also, its aircraft-leasing division faces a financial squeeze, with the prospect of having to sell commercial jetliners at a loss.
