This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

AIG Bailout: Breaking Up Is Hard to Do

Stocks in this article: AIG

The Fed can exchange preferred shares for common equity, thereby halting dividend payments and giving AIG more flexibility to handle its losses. Such a move would also grant the government board seats and more control over operations, but give taxpayers a heap of penny stock instead of the cold, hard cash they were promised.

Regulators may also be able to defer loan payments under revised terms, or take over some of AIG's cash-generating businesses in lieu of outright dollars.

While the U.S. government may not be interested in operating life-insurance business, such a move would not be unprecedented, notes Steuber, who says state agencies have taken over bankrupt insurers in the past. While AIG's businesses may be larger and far more complex, keeping them running under the auspices of Uncle Sam will be far less difficult - and preserve more value - than letting the firm go under or selling assets at rock-bottom prices.

After all, the government has the luxury of holding onto assets with greater economic value than the market is offering, until the market can repair its balance sheet and start making heady offers again. Such a deal might offer better return for taxpayers than all the money-losing businesses they have been forced to invest in so far.

"If I'm Tim Geithner and I want to get the best return-on-investment," says Sherman, referring to the Treasury Department chief, "I would let AIG sit tight, repair itself and then chop off the company and sell off the healthy parts. But do it in an adequate timeline, not at these fire-sale prices."

However, Paduda doesn't see this as a likely scenario. He notes that the government is handling multiple crises in the banking, auto and housing sectors, and isn't interested in running byzantine insurance operations for extended periods of time.

"There's no question the feds want to get outside of this business as fast as they can," he says. "I wouldn't be surprised to see the feds tell AIG that if they get a decent offer for whatever they've got, you have to bring it to us and you have to sell."

6 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs