AIG Wipeout

September 17, 2008

aig21.jpgAmerican International Group‘s bailout sounds a lot like the conservatorship of Freddie Mac and Fannie Mae. The Treasury will be at pains to make sure everybody knows AIG shareholders are getting wiped out, not bailed out. Meanwhile, the fired management of AIG will be due millions of dollars in golden anvils (as opposed to the parachutes reserved for privately saved company executives). Then, there is an off-chance that during the two years that AIG’s organs are harvested, the markets recover dramatically enough to more than pay for the $85 billion loan the government made to AIG in exchange forĀ its near-80 percent stake. Presumably, that money could go to existing shareholders. But given the hefty interest rate on the loan — 850 basis points over LIBOR – the chance of any payoff is as slim as the day is short.

Bit buyers for AIG’s lucrative assets are already seen around the world licking their chops. Japan’s well-capitalized and acquisitive insurers and Australia’s top player are seen as potential buyers. China’s ambitious insurers would be more cautious given market turmoil at home. It was not immediately clear if insurance businesses might come up for sale, although The Wall Street Journal reported earlier this week that AIG, which operates in more than 100 countries, might sell Transatlantic Holdings, its reinsurance group, with Europe’s Swiss Re and Munich Re as potential buyers. Analysts have also said Canadian life insurance company Manulife Financial would be interested in some of AIG’s businesses.

Other deals of the day:

* U.S. flash memory maker SanDisk rejected a near-$6 billion offer from global market leader Samsung Electronics, but said it would not rule out a deal at a better price.

* U.S. investment bank Morgan Stanley is weighing whether it should remain independent or merge with a bank, given the recent turbulence in the company’s share price, broadcaster CNBC reported.

* Ferrovial‘s British airports operator BAA said it is putting its Gatwick airport in London up for sale — but vowed to fight to retain the rest of its portfolio.

* British bank Lloyds TSB is in merger talks with the country’s biggest mortgage lender HBOS , a person familiar with the matter said.

One comment so far | RSS Comments RSS

Does anyone see the similarity between the Feds handling of the AIG debacle and the way the Bush Administration handled Katrina? On Sunday night AIG needed a bridge loan of $20B. Knowing (at least they should have known) that it wasnt possible the Fed insisted that AIG find private financing. When that private money didnt materialize and after sitting on their ignorant hands for 36 hours they ended up agreeing to provide $85B to save AIG. They ended up wiping out the shareholders of the company and seem very proud of that fact. Did they forget that the AIG shareholders are millions of Americans that owned this stock, often in their IRAs and 401Ks. You wonder why the markets reacted negatively? If you had limited confidence in the markets you now have even less confidence as an invester in Uncle Sam.

Posted by Jay Mintzer | Report as abusive

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