American International Group Inc.'s annual meeting on Tuesday will be the first with the U.S. government as the controlling shareholder, but almost certainly not the last.
Many financial firms that took bailout money paid back billions this month. Yet even with the deal announced Thursday to give the Federal Reserve Bank of New York stakes valued at $25 billion in two of AIG's foreign life-insurance units -- a move that will reduce AIG's tab -- it remains unclear when or whether taxpayers will be made whole.
Washington is exerting broad influence over AIG as it tries to lay the groundwork for repayment. Also, three trustees who oversee the nearly 80% government ownership of AIG will be at the meeting. Their six handpicked director candidates, who will form the majority on the new 11-member board, will be elected.
Already, some of the six have joined with some current board members on an informal CEO search committee that is identifying possible candidates, say people familiar with the matter. AIG Chairman and Chief Executive Edward Liddy, installed by the government in September, has indicated he wants to leave.
Directors would like to see new leadership in place as soon as possible, says one person familiar with the matter. The new board must also pick an independent chairman, probably from within its ranks, and may take that step before it finds a CEO.
AIG will likely take years to pay back the government -- three to five years, Mr. Liddy estimated to Congress in May, or longer if the economy worsens. It's not certain it will be able to.
The company has borrowed $43 billion from the New York Fed as of Wednesday, and the Treasury Department has invested $40 billion in AIG. The Fed has poured another $44 billion into two entities that bought up toxic AIG assets. So taxpayers are currently on the hook for $127 billion out of the $173 billion in aid the government has made available to AIG.
As for the New York Fed debt, the $25 billion deal struck Thursday, which AIG and the Fed had basically committed to in March, will cut it to about $18 billion. The deal involves foreign life-insurance units that are moving toward public offerings starting next year, and the Fed will get the first dollars from those sales. But it could take months or years of selling off shares on the open market before the Fed gets fully paid for its investment.
Another deal is pending to hand over to the Fed bonds valued at up to $8.5 billion backed by life-insurance policies, which could cut the Fed debt further, to $9 to $10 billion, if AIG's Fed borrowing doesn't rise or decrease.
AIG's debt to the New York Fed could rise, however, if economic conditions deteriorate and AIG needs more help. Worsening economic conditions could also hurt the value of AIG's investments and its units.
It's unclear whether the life-insurance units and bonds backed by policies that AIG is handing over will turn out to be worth what AIG and the Fed are valuing them at, and how long it will take to turn them into cash.
In addition it's not clear how much AIG's stake in the units will be worth after the Fed gets its $25 billion and whether there will be enough to repay the rest of the Fed debt and the Treasury's $40 billion investment.
CreditSights, a debt-research firm, says its ballpark estimate is that the two life-insurance units are worth $40 to $55 billion, though valuations could rise if markets recover. That could mean that after the Fed got its $25 billion, AIG could have stakes worth $15 to $30 billion left over and possibly billions more.
AIG also has other assets it can use to repay taxpayers, particularly its global property/casualty insurance operations, in which it is also plans to sell a stake that would likely be worth billions. It can also sell off its domestic life-insurance operations, though the financial crisis has battered that industry, including many potential buyers.
As for whether the New York Fed's $44 billion bet on the toxic assets pays off, that's largely a matter of waiting to see if they end up being worth more than the discounted price the Fed paid. That could take years to determine, though the bet is currently about $3.8 billion in the red.
Many financial firms that took bailout money paid back billions this month. Yet even with the deal announced Thursday to give the Federal Reserve Bank of New York stakes valued at $25 billion in two of AIG's foreign life-insurance units -- a move that will reduce AIG's tab -- it remains unclear when or whether taxpayers will be made whole.
Washington is exerting broad influence over AIG as it tries to lay the groundwork for repayment. Also, three trustees who oversee the nearly 80% government ownership of AIG will be at the meeting. Their six handpicked director candidates, who will form the majority on the new 11-member board, will be elected.
Already, some of the six have joined with some current board members on an informal CEO search committee that is identifying possible candidates, say people familiar with the matter. AIG Chairman and Chief Executive Edward Liddy, installed by the government in September, has indicated he wants to leave.
Directors would like to see new leadership in place as soon as possible, says one person familiar with the matter. The new board must also pick an independent chairman, probably from within its ranks, and may take that step before it finds a CEO.
AIG will likely take years to pay back the government -- three to five years, Mr. Liddy estimated to Congress in May, or longer if the economy worsens. It's not certain it will be able to.
The company has borrowed $43 billion from the New York Fed as of Wednesday, and the Treasury Department has invested $40 billion in AIG. The Fed has poured another $44 billion into two entities that bought up toxic AIG assets. So taxpayers are currently on the hook for $127 billion out of the $173 billion in aid the government has made available to AIG.
As for the New York Fed debt, the $25 billion deal struck Thursday, which AIG and the Fed had basically committed to in March, will cut it to about $18 billion. The deal involves foreign life-insurance units that are moving toward public offerings starting next year, and the Fed will get the first dollars from those sales. But it could take months or years of selling off shares on the open market before the Fed gets fully paid for its investment.
Another deal is pending to hand over to the Fed bonds valued at up to $8.5 billion backed by life-insurance policies, which could cut the Fed debt further, to $9 to $10 billion, if AIG's Fed borrowing doesn't rise or decrease.
AIG's debt to the New York Fed could rise, however, if economic conditions deteriorate and AIG needs more help. Worsening economic conditions could also hurt the value of AIG's investments and its units.
It's unclear whether the life-insurance units and bonds backed by policies that AIG is handing over will turn out to be worth what AIG and the Fed are valuing them at, and how long it will take to turn them into cash.
In addition it's not clear how much AIG's stake in the units will be worth after the Fed gets its $25 billion and whether there will be enough to repay the rest of the Fed debt and the Treasury's $40 billion investment.
CreditSights, a debt-research firm, says its ballpark estimate is that the two life-insurance units are worth $40 to $55 billion, though valuations could rise if markets recover. That could mean that after the Fed got its $25 billion, AIG could have stakes worth $15 to $30 billion left over and possibly billions more.
AIG also has other assets it can use to repay taxpayers, particularly its global property/casualty insurance operations, in which it is also plans to sell a stake that would likely be worth billions. It can also sell off its domestic life-insurance operations, though the financial crisis has battered that industry, including many potential buyers.
As for whether the New York Fed's $44 billion bet on the toxic assets pays off, that's largely a matter of waiting to see if they end up being worth more than the discounted price the Fed paid. That could take years to determine, though the bet is currently about $3.8 billion in the red.
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