AIG Shareholders Will Have to Wait

AIG's CEO says it will take two years for the insurer to repay $80 billion in remaining government loans. It might take shareholders a lot longer to see their money returned.
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) -- Anyone who has been a holder of

American International Group

(AIG) - Get Report

shares since before its gigantic bailout must consider not just how long it will take to repay taxpayer loans, but how long it will take for AIG shares to multiply by a factor of roughly 20.

AIG's brash leader, Bob Benmosche, told the

Financial Times

that he expects it will take at least two years for the insurer to repay $80 billion in remaining loans from the federal government. Once that happens, the feds would presumably begin to wind down their 80% stake in AIG's common stock.

But the horizon for long-term shareholder rewards is much longer. Although the firm's fortunes have undeniably improved since Dec. 31, 2008, AIG shares are down 10% so far this year. Since June 30, 2008, before the rescue package that would eventually reach $180 billion was unveiled, AIG's stock is down 95%.

Many of AIG's businesses have value but the overall picture is made murkier by the firm's exposure to roughly $1 trillion in derivatives that are being unwound, and other complex products and business lines in its financial products unit.

Furthermore, while Benmosche has been adamant about taking time to sell non-core businesses to the highest bidder, it's unclear how their fortunes will fare in the meantime. On Friday, Moody's slashed its rating on AIG's aircraft leasing business,

International Lease Finance Corp.

, which was thought to be a crown jewel. Part of the ratings agency's logic for cutting the rating to junk territory was ILFC's "diminished strategic importance."

In other words, how well is AIG taking care of these businesses it no longer wants, while it waits for the best bid? It's probably not investing much in these firms, or building out the franchise. Instead, AIG is focused on winding down other operations and trying to retain customers in its core property and casualty operations.

Benmosche told the

Financial Times

that his aggressive management style has turned AIG's fate around, which appears to be true. He has taken on regulatory edicts he considered unfair to retain key employees, and has even threatened to quit himself. He has also taken a far different approach than his predecessor, Edward Liddy, to boost morale and let employees and customers know that there were viable businesses to be proud of beneath all of the muck.

While he has certainly made headway in stopping AIG's bleeding, and in moving the restructuring process forward, investors shouldn't be too hopeful about the two-year time frame. Even if

AIG repays the government in 2010

it's almost certain that returning money to shareholders will take a lot longer.


Written by Lauren Tara LaCapra in New York