AIG: 5 Outlandish Story Lines
This week, TheStreet and RealMoney will be exploring the aftermath of Lehman Brothers' bankruptcy filing and the ensuing market chaos it brought to a head almost a year ago. Read all of our One Year Later coverage.
NEW YORK (
) --
American International Group
(AIG) - Get Report
has received more support from the government's bank bailout than any other company throughout the global financial crisis. And it's not even a bank.
Since the feds seized control of the insurance giant on Sept. 16, 2008, the Treasury and
Federal Reserve
have extended $180 billion worth of support.
By comparison,
Bank of America
(BAC) - Get Report
and
Citigroup
(C) - Get Report
received more than $45 billion each from the Troubled Asset Relief Program, in addition to the government's offers to backstop billions more in soured assets on their books.
Wells Fargo
(WFC) - Get Report
and
JPMorgan Chase
(WFC) - Get Report
each received $25 billion. The second runners-up for biggest corporate welfare recipient,
Fannie Mae
(FNM)
and
Freddie Mac
(FRE)
, have each had $100 billion extended.
AIG has so far used $134 billion and lost more than $64 billion in the three full quarters since the government takeover. It would have lost more had the government not purchased $50 billion of its toxic assets, extended $90 billion in credit lines and poured $40 billion into preferred stock investments.
Needless to say, the mammoth insurer -- which was years in the making -- had a long and hard fall, and its utter lack of insurance against its potential losses is mind-boggling in its scope. Here's a look back at five outlandish AIG story lines since the company nearly collapsed one year ago:
The Bailee Becomes Bailer-Outer
AIG's bailout might seem enormous for a single company, but that's because it wasn't just for AIG.
About $89 billion of the government's support has been funneled to counterparties -- dozens of banks, many outside the U.S. -- to douse the fire created by derivative products gone bad.
Goldman Sachs
(GS) - Get Report
got the biggest sliver of the pie at $13 billion, leading to sharp criticism of former Treasury Secretary Henry Paulson. Paulson, a one-time Goldman CEO, decided to fully compensate AIG's trading partners, thereby helping his alma mater.
The combined BofA-
Merrill Lynch
came in a close second, receiving $12 billion.
And while $12.1 billion went to states that had investments guaranteed by AIG, a sizeable amount also went abroad. About $56 billion in U.S. taxpayer dollars, or 41% of AIG's bailout spending so far, has gone to foreign banks, like
Societe Generale
,
Deutsche Bank
(DB) - Get Report
,
Barclays
(BCS) - Get Report
and
UBS
(UBS) - Get Report
.
Paulson's Goldman connections were fodder for conspiracy theorists and the flood of taxpayer dollars overseas didn't help a public already skeptical of the bailout like it any more.
Campouts in Connecticut
AIG employees got a firsthand taste of the public's distaste for the bailout when busloads of activists protesting plans to award bonuses at the bailed-out company began camping out in front of executives' homes in Connecticut.
A group called Working Families organized a "Lifestyles of the Rich and Infamous" tour of upper-crust New England mansions, purportedly to deliver letters, but mostly to make a scene. In a frighteningly ferocious twist, some even sent death threats.
Of course the protesters had reasons to be angry. The company planned to dole out $165 million in performance bonuses after losing tens of billions of dollars and asking for federal assistance. Some of those bonuses were meant to retain employees from a division that caused AIG to crumble. News reports of employees receiving company-financed spa treatments days before AIG's collapse only fueled the outrage.
Then-CEO Edward Liddy, hand-picked by Paulson and receiving $1 in annual pay, took a beating in front of lawmakers for compensation contracts he didn't approve and was legally obliged to honor. Executives hired guards to protect their homes and families. They followed the company's advice to avoid brandishing the AIG logo, and to travel in well-lit areas at night, never alone.
"However someone may feel about the appropriateness of the retention payments, there is nothing appropriate about the threats that people have made to and about employees," company spokesman Mark Herr said in a statement.
Soon, a top executive in AIG's notorious financial-products unit was making headlines by
quitting quite publiclyinking an op-ed in the
New York Times
. His statement that AIG employees deserved those bonuses and were disappointed with Liddy's anemic defense may not have garnered much sympathy, but it did mark a turning point.
New CEO
Robert Benmosche will earn at least $7 million this year. He pledged to ensure that employees are paid "competitively" and said top performers should receive "a big increase."
Perhaps some of those perks should fund security details up in Fairfield.
Beachside Leadership
Benmosche assumed his position on Aug. 10. Then he promptly took a two-week vacation.
In his defense, the former
MetLife
(MET) - Get Report
CEO had planned the retreat before solidifying his new role. He hosted boastful media huddles at his Croatian beachside villa to shore up confidence in his qualities and AIG's strength.
Benmosche told
Reuters
he was in communication with his top guns and "getting a lot of work done." He was wearing flip-flops, khaki shorts and a green polo shirt at the time.
"People criticize me for being on vacation. I actually started work a week before I was actually supposed to," Benmosche said, according to
Reuters
. "I do have conference calls every day, I have all my information sent here. I can work here as well as in the office in New York."
Hopefully he wasn't sipping any daiquiris when deciding upon a new business head, schmoozing with former CEO
Maruice "Hank" Greenberg, or
hammering out a deal to sell part of a prized division.
All joking aside, the 65-year-old insurance vet's bluster has so far been a double-edged sword. He's come out swinging -- defending demoralized employees, asserting that he won't sell assets on the cheap, and promising to repay the government's $180 billion bailout package -- but perhaps swinging too hard.
The board has
threatened to rein in Benmosche if he doesn't watch his language, which isn't a bad idea. But while inappropriate in public forums, his tough talk may not be such a bad thing behind the negotiating table with regulators, bidders, employees or investors.
Furthemore, on a relative basis, effective leadership from the shores of Dubrovnik doesn't seem so bad.
Benmosche's predecessor was viewed by the market as a government lackey, criticized for undervaluing assets and heckled by legislators. Robert Willumstad, the CEO before Liddy, had a brief tenure, passing through for a few months to oversee the firm's near-collapse. Before him came Martin Sullivan, who ushered in the era of credit-default swaps and other toxic investments.
And, of course, Greenberg was the one who built AIG into a financial supermarket, only to be ousted amid an accounting scandal. He had been embroiled in lawsuits against the firm for years, extinguishing them recently after Benmosche opened a cordial dialogue with him.
Volcano in Aisle 1
Whoever decided that
Citigroup
(C) - Get Report
ought to be the poster child of the "financial supermarket" model needs to take a closer look at AIG.
The firm
announced plans to divest much of itself shortly after the bailout. One might have thought the most exotic operations up for sale would insure against terrorist attacks, volcanic eruptions, crop disasters or fine-art thievery.
Not so.
In fact, given AIG's ownership of a solar park, a
ski mountain and a
power generation plant, it wouldn't be too surprising if AIG owned a volcano it insured against too.
Unusual or not, some of the assets are solid, profitable businesses. But AIG is trying to unlock their value at an unfortunate time, with few interested buyers, and even fewer offering solid bids.
Before the bailout, the insurer had a balance sheet with $1.05 trillion in assets spread throughout the world. About 20% of that has been whittled off, due to value declines, losses, wind-downs and the sale of its bad debt to the Fed. AIG has divested only $10 billion in assets, despite scores of small deals.
Consider a crown jewel on the block:
International Lease Finance Corp., an aircraft leasing company with a fleet of 900 jets valued at over $40 billion. AIG has had such a hard time selling the business that the head of ILFC reportedly made a pitch to
buy it himself.
The firm might
make some headway with Benmosche, who insists he
will hold out for the right prices. He may be the shot in the arm AIG needs if he can walk as well as he talks.
But until the market is ready for the flood of items AIG has in its aisles -- whether lenders in emerging markets or Vermont's Stowe Mountain -- it may have better luck asking stock investors for cash. The company has several divisions primed for spinoffs at a perfect time, as the IPO market has started to gain traction and investor stock appetite remains relatively strong.
Once AIG's supermarket is fully dismantled, it may need to do some shopping of its own. The firm is reportedly selling its headquarters building at 70 Pine St. in Lower Manhattan, putting it in the market for new digs.
The Zombie Trifecta
With all the bizarre and outrageous occurrences at AIG in the past year, its share price movements may have been the least guided by sense.
From day to day, depending on where speculative traders have aimed their guns, AIG has climbed as much as 63% and fallen as much as 28% in a single session. The range of trading has been enormously wide, with the quarterly high of $55.90 about 6.8 times higher than the low of $8.22.
Those movements have occurred without very much news affecting the firm's underlying value as a company that is 80% owned by the government, much like fellow zombie stocks Fannie Mae and Freddie Mac.
"There's a feeling there is some safety and maybe these things are worth taking little stabs at," says Rick Bensignor, who is president of trading firm Bensignor Strategies and writes the Top Gun Trader newsletter for
RealMoney.com
. "I suspect they make money doing so."
AIG's new CEO may have a strong record and presence, but his plans for the insurer will take a long time to execute. And while AIG posted a second-quarter profit, it will take a very long time for the firm to be independently profitable again.
Other meanderings of the AIG saga have been peculiar or troublesome, but this is the one that stands to affect ordinary investors the most. In the short term, to profit from AIG shares, traders have to be lucky enough to execute at the right moment, while staying aware of the long-term risks.
-- Written by Lauren Tara LaCapra in New York
.
