Monday, March 2, 2009

AIG – still not save from the bailout

By: Li Bin Chen

Nearly six months after American International Group Inc. got its first massive bailout from the government, it's still stumbling. Its shares are down 96 percent since its first bailout was announced. AIG keeps losing money even after the initial bailout and it is unable to sell some of its biggest assets. AIG, the insurer deemed too important to fail, may get a commitment for as much as $30 billion in new government capital after a record quarterly loss. They are expected to post a roughly $60 billion in quarterly loss largely due to write downs on certain tax assets and commercial mortgage backed securities. The deal with the U.S. government would ease the terms of its bailout, give a further equity commitment and help it pay down debt.

The government saves AIG once and it will save it again for the same reason: AIG is considered too big and too important to fail. If the government lets AIG fail, it will sent enormous shock across all industries because AIG had hold portfolio in different areas. This shock will reflect an even sharper decline in the current stock price which the United Stated government is trying its best to save.

The government will swap the 80 percent stake it currently holds in AIG for even bigger pieces of the three units that would be split off from the company: AIG's Asian operations - Asia-based American Life Insurance (Alico), its international life insurance business - American International Assurance Co (AIA and its U.S. personal lines business. In return for the breakup, the government would relax the terms, or cancel, a portion of the $60 billion loan that was at the center of a restructured $150 billion rescue package


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