AIG working on investing cash, may bid on bonds.

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Bailed-out insurer American International Group (AIG.N) is working hard to invest cash it set aside for a failed deal to buy back assets from the Federal Reserve, Chief Executive Bob Benmosche said on Tuesday.

But the company is still looking at taking part in the auction the Fed set up for the nearly $16 billion pool of mortgage-backed securities, Benmosche told Reuters in an interview. He was in Croatia to address a U.S.-organized conference on investing in that country.

The Fed bought the securities from AIG during the depths of the financial crisis in 2008 as part of a package to save what was then the world’s largest insurer from collapsing into bankruptcy.

AIG had offered to buy the whole of the Fed vehicle Maiden Lane II, which holds the securities, for $15.7 billion. The company had been accumulating cash for months at its insurance units in anticipation of the deal.

But the Fed rebuffed it and said it would instead hold a public auction for pieces of the portfolio, which Benmosche has called a “huge problem” for the company, given all the low-returning cash it was stuck holding.

“Because the money has been sitting in cash, we are now busy getting that invested, and that has created a headwind to say, ‘What can AIG actually earn off the cash they have and what they actually invest in during this period of time?'” Benmosche said.

“And it’s put us behind the 8-ball a bit, but we are confident we’ll start working our way out of it.”


The first Fed auction is now underway, and Benmosche said AIG was trying to decide whether to bid based on the securities on offer.

The other major issue AIG has looming is a stock offering. The U.S. Treasury holds 92 percent of AIG after the company’s $182 billion bailout, and it is expected to begin selling down that stake as soon as next month.

AIG has plans to sell shares in the same offering, though Benmosche said the timing of any sale was entirely up to the government.

He did say, though, that AIG remains comfortable with the goal of selling about $3 billion in stock in the offering.

“That is an estimate that we have talked about and we have not changed that estimate. I think for now we think it is reasonable,” he added.

Benmosche is expected to participate in the roadshows for the share sale despite undergoing treatment for cancer. AIG said earlier this year his prognosis was such that he should be able to stay on the job through mid-2012 as originally planned.

He said Tuesday that AIG’s board has not yet selected a successor for him. The company’s contingency plan would have Chairman Steve Miller step in as interim CEO if Benmosche were unable to keep working.

“Well, I still feel pretty good, so I am not ready to step down today. I don’t think that they have selected a CEO, but I believe that they have gone through a very thoughtful succession process,” he said. “They have a sense of the internal candidates and things they expect those people to work on, to improve this year and into next year.”

AIG shares rose 3 percent to $34.97 in mid-morning trading. The stock has lost about a quarter of its value since a recapitalization deal with the Fed and the Treasury closed in late January.


10 thoughts on “AIG working on investing cash, may bid on bonds.”

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  3. AIG repaid the last $21 billion it owed on a Federal Reserve credit line and swapped the Treasury Department’s preferred stake for common stock as the United States unwinds its investment in the company.

    Treasury now owns 1.66 billion shares of AIG, or about 92 percent of the company, and will sell the securities to repay an investment of about $49 billion through the end of last year, the regulator said in a statement Friday. Treasury’s investment climbed to $68 billion as it helped AIG meet obligations to the Fed.

    “We have to stand on our own and meet the expectations of the marketplace,” Chief Executive Officer Robert Benmosche said in a separate statement. The insurer will “demonstrate through our actions going forward that we are worthy of investor confidence,” he said.

    AIG is working to replace government funds with private capital after selling assets to help repay the Fed. The company raised $2 billion selling bonds on Nov. 30, its first debt sale since the 2008 rescue that swelled to $182.3 billion.

    “If you think back one year or two years ago, there was no way that AIG could have raised, you know, $2 in the market, let alone $2 billion,” Chairman Steve Miller said in a Nov. 14 Bloomberg Television interview. “Now the markets are open, investors have confidence.”

    Treasury has been scaling back investments acquired in bailouts during the financial crisis. The department sold $10.5 billion of Citigroup Inc. shares on Dec. 6 and received $13.6 billion from a November offering of General Motors Co. stock.

    Treasury will recover the $49 billion if shares are sold at an average of about $29 each. The additional Treasury investment may be repaid with proceeds of asset sales.

    AIG slipped $3.19, or 5.6 percent, to $54 in New York Stock Exchange composite trading. The insurer has gained about 90 percent in the past year. The company will pay a dividend of about half a warrant per share next week to private investors. The 10-year contracts, which allow investors to purchase a share for $45, fell $2.63 to $19.55.

    Treasury interviewed banks this week to select underwriters to divest the AIG shares, according to a person with knowledge of the plan. The regulator expects the share price may decline next week when the warrants are issued, the person said.

    Treasury may need 18 months to divest its stake, Benmosche told CNBC on Friday.

    AIG was first rescued by the Fed in 2008 after the firm was unable to meet obligations on contracts that protected banks against losses on investments tied to subprime mortgages. The bailout was revised at least four times to make more funds available, lower interest payments and give the company additional time to sell assets. Friday’s transactions are part of a plan announced in September.

    “Treasury welcomes the culmination of AIG’s recapitalization plan, which is a vital part of that company’s turnaround and puts Treasury in an excellent position to begin realizing value for taxpayers,” said Treasury Secretary Timothy F. Geithner in Friday’s statement.

    Read more:

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  5. American International Group Inc. (AIG), the bailed-out insurer, climbed after citing a return to “sustainable operating profit” as it booked a tax benefit that fueled record earnings.

    AIG advanced 1.5 percent to $28.40 at 4:01 p.m. in New York, after rising as high as $30.09 earlier in the day. The government needs to divest its whole stake for an average of at least $28.72 a share to recoup taxpayer funds. The shares have closed below the break-even price on the New York Stock Exchange every day since late July.

    The insurer now projects that it will generate enough profit to use tax assets, tied to prior losses, that can limit future payments to the government. AIG’s biggest unit, property- casualty insurer Chartis, and its plane-leasing business swung to operating profits in the fourth quarter, the New York-based company said in a statement yesterday as it posted net income of $19.8 billion.

    “You’re definitely going to get a bounce” in the share price, Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a telephone interview yesterday. “The question is, How long and how sustainable is it?” He has a “market perform” rating on AIG.

    The insurer, which booked a $17.7 billion tax benefit in the quarter, is among companies posting accounting gains as they return to profit after the recession. Ford Motor Co. said last month that it was removing a valuation allowance, created in 2006 as it began reporting operating losses, against deferred tax assets, because it expects future profits. The benefit contributed $12.4 billion to the automaker’s $13.6 billion of net income in the fourth quarter.
    Remaining Businesses

    After-tax operating income at AIG was $1.56 billion in the three months ended Dec. 31, compared with a loss of $2.21 billion a year earlier, according to the statement. Chief Executive Officer Robert Benmosche, 67, cited improvements at the company’s units and confidence in future earnings as part of the determination to record the tax benefit.

    Chartis had fourth-quarter operating income of $348 million, compared with a loss of $3.97 billion a year earlier, when the unit took a charge of more than $4 billion because reserves proved inadequate. International Lease Finance Corp., the plane-leasing business, had operating profit of $119 million compared with a loss of $606 million a year earlier as impairments declined.

    The results “confirmed its return to sustainable operating profit for the full year,” AIG said in a regulatory filing yesterday. “This, together with the emergence from cumulative losses in recent years and projections of sufficient future taxable income, represents significant positive evidence” that it will be able to use the deferred tax assets.
    Full-Year Profit

    Full-year net income of $17.8 billion compares with a $7.8 billion profit in 2010, when the company posted gains on the sale of American Life Insurance Co. and two-thirds of AIA Group Ltd. Book value per share, a measure of assets minus liabilities, rose to $55.33 on Dec. 31 from $45.30 three months earlier, on the tax benefit, AIG said.

    “These companies always trade off their book value,” Gloria Vogel, an analyst at Drexel Hamilton LLC who advises clients to buy AIG shares, said in a phone interview yesterday. “The fact that they grew book value 22 percent” will be viewed favorably by investors.

    The Treasury reduced its ownership of AIG in May to 77 percent by selling 200 million shares for $29 each in a public offering. AIG was rescued in 2008 as bets on the mortgage market soured. The bailout was revised at least four times, swelling to $182.3 billion as the U.S. extended more credit and lowered the interest charged.

  6. American International Group Inc. (AIG), the insurer majority owned by the U.S. government, sold a $500 million stake in Blackstone Group LP (BX), according to a person familiar with the matter.

    AIG, based in New York, exited the stake in a block trade before U.S. markets opened, said the person, who declined to be identified because he isn’t permitted to speak about the transaction. AIG notified Blackstone in 2010 that it would convert 35.7 million Blackstone partnership units into common shares, which trade on the New York Stock Exchange. AIG has sold non-U.S. life insurers, a consumer lender, an asset manager and other businesses to help repay a 2008 U.S. government rescue that swelled to $182.3 billion. Chief Executive Officer Robert Benmosche, 67, is seeking to convince investors of the potential of remaining units, including global property-casualty insurer Chartis Inc. and domestic life insurance operations, as the U.S. Treasury Department works to exit its majority stake.

    The sale removes a “major overhang” on Blackstone’s shares and makes way for “clearer sailing,” William Katz, a Citigroup Inc. analyst, said in a note to clients today. “We continue to see Blackstone as best positioned among publicly traded Alternatives Managers,” Katz wrote.
    Previous Sale

    Christine Anderson, a spokeswoman for Blackstone, declined to comment on the transaction, citing legal restrictions. Mark Herr, a spokesman for AIG, also declined to comment. The CNBC cable network reported the sale earlier today.

    The insurer previously sold 10 million Blackstone shares for $134.1 million, hours after they were converted from partnership units on Dec. 15, 2010, according to a Form 4 filed at the time with the U.S. Securities and Exchange Commission.

    AIG’s investment in Blackstone dates to July 1998, when the insurer announced it would pay $150 million to acquire a 7 percent stake in the New York-based buyout firm, which was formed by Peter Peterson and Stephen Schwarzman in 1985 to provide merger advice. At the time, AIG also committed $1.2 billion to Blackstone buyout funds, the first of which was formed in 1987.

    Blackstone fell 2.8 percent to close at $15.29 in New York trading. The stock has gained 9.1 percent this year, compared with an 8.9 percent increase in the Standard & Poor’s 500 Index

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  9. A federal judge Monday ordered American International Group Inc. and the Securities and Exchange Commission to make public the corporate monitor reports on AIG leading up to the economic collapse of 2008. It is believed to be the first time a court has ordered a monitor’s reports to be released.

    The motion seeking access was filed by senior reporter Sue Reisinger of CorpCounsel and its parent company ALM Media. In granting it, U.S. District Judge Gladys Kessler in Washington, D.C., said the monitor reports could be redacted to delete AIG’s proprietary information.
    The motion was prepared by attorney Joshua Wheeler, of the Thomas Jefferson Center For The Protection Of Free Expression, based in Charlottesville, Virginia, with assistance from students in the University of Virginia’s law school clinic. Wheeler said he was aware of no other case in which a court ordered a monitor’s reports to be opened.

    Kessler thwarted one of the motion’s arguments, saying the First Amendment does not apply in this civil case. But she ruled that there is a common law right of access to judicial records.

    The reports of the monitor, or as AIG called him, independent consultant, “are relevant to the judicial function and therefore are properly considered judicial records,” she wrote. “The reports themselves may give rise to a substantive judicial decision in this case.”

    Reacting to the ruling, Wheeler said, “Judge Kessler’s decision properly recognizes the critical need for the public and press to have access to judicial records such as these in order to effectively monitor the actions of our government. As Thomas Jefferson wrote, ‘An informed citizenry is the only true repository of the public will.’ ”

    In their joint motion opposing the unsealing, AIG and the SEC had argued that the reports are not “judicial records” subject to public access, and that the release would be “inconsistent with the need for confidentiality” to protect AIG’s business interests.

    Attorneys for the SEC and AIG didn’t immediately return messages seeking comment, nor answer questions about a possible appeal.

    Government attorney Laura Josephs represents the SEC, along with outside counsel Linda Thomsen, who is a partner at Davis Polk & Wardwell as well as a former director of the SEC’s enforcement division. William Jeffress, Jr., a partner at Baker Botts in D.C., represents AIG.

    The case began in November 2004 when the SEC filed a complaint against AIG for securities violations. Filed with it was a $126 million settlement that included a consent order in which the company neither admitted nor denied wrongdoing.

    In the consent order, AIG agreed to set up a transaction review committee and to retain a monitor selected by the Department of Justice.

    The man selected for the job was James Cole, then a partner at Bryan Cave in D.C. and now deputy attorney general in the U.S. Department of Justice. Although the monitor’s job was supposed to last only three years, subsequent securities violations by AIG kept the court case open and Cole on board.

    Cole began monitoring AIG in January 2005 and filed periodic reports with the SEC until he accepted the deputy AG job in January 2011. Until now, the SEC has refused to release those reports to the public.

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