THE BASIS POINT

AIG Abandons Asset Sale Plan Announced Last September

 

Remember when the heat of the credit crisis was the worst and AIG just needed time to sell assets? That plan is now being scrapped according to Bloomberg:

AIG said Sept. 16 it will sell assets to repay an $85 billion loan from the Federal Reserve. Liddy has now concluded that plan won’t work, said two people with knowledge of the matter, who declined to be identified because discussions with the government are private. AIG may hand over stakes in some operations directly to the U.S. to reduce its debt, one of the people said yesterday.

The talks come as AIG, propped up with $150 billion of U.S. aid, prepares to disclose a record fourth-quarter loss of about $60 billion and seeks to fend off credit-rating cuts, the people said. The global financial crisis has slashed the Standard & Poor’s 500 Insurance Index in half since Liddy announced the plan, reducing the prices AIG units can fetch and thinning the pool of companies strong enough to bid for them.

“AIG’s problems have been underestimated by everyone looking at it,” said Marshall Front, who oversees $500 million as CEO of Chicago-based Front Barnett Associates and sold his stake in the company last year. “The exit strategy from here is extremely murky; each time we seem to have temporarily fixed a problem, additional severe problems have emerged.”

One option under discussion at AIG is handing off some of the non-U.S. life insurance businesses to the government in exchange for forgiveness of part of the loans, said one of the people with knowledge of the talks. AIG’s two biggest non-U.S. life insurance units, with major operations in Japan and China, are candidates for those swaps, the person said.

 
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