Wednesday, March 10, 2010

"At AIG, What Is Left to Sell?" (AIG)

As I said in this morning's, "A Jump in American International Group Attracts Call Players (AIG)":
Of the government owned ventures (GOV's), Citigroup is the standout. AIG could sell every asset they have and not come up with enough cash to repay the federales. Fannie and Freddie are dead without the cash transfusions from the Treasury....
Here's a quick look at the company's assets from the WSJ's Deal Journal (since I'm lifting the whole piece I'll recommend another of their posts at the bottom of this one):

AIG has sold two life insurance companies in less than two weeks, bringing in a total of $51 billion.

Impressive, except the company still owes the government $50 billion and it is running out of assets to sell. What is more, as the New York Times points out, AIG has been slowly becoming even more dependent on government assistance by tapping “a billion or two billion more” every few months from the Federal Reserves loan facility.

So what is there left to sell?

The company shelved plans last month to jettison its financial-products unit, which generated damaging losses during the financial crisis. The unit probably would fetch only about 15% to 25% of its value at the market peak, or about $300 million to $500 million.

AIG also owns a giant aircraft-leasing company, International Lease Finance Corp., but hasn’t been able to find a buyer for the entire operation. In early June, two private-equity buyers, Onex and Greenbriar Equity Group, agreed to pay $2.5 billion to $3 billion, but the deal fell through because the buyers couldn’t line up financing. The aircraft unit, or pieces of the business, probably could fetch higher prices now, given improvements in the stock and credit markets since June. But the bids aren’t going to make tax payers whole by any stretch.

AIG also has a mortgage insurance unit that has been hammered by mortgage losses. There has been no word about any potential bids there. But consider that its chief competitor, Radian Group, has a market value of just $906 million.

That leaves the option that the government could convert its preferred AIG shares into common shares, according to today’s WSJ article on the MetlLife deal, or issue new shares to the public.

AIG didn’t report a profit last year and set aside $2.7 billion of reserves in the fourth quarter for future claims–a move a Morningstar analyst called a “red flag” for future losses, according to the Times. Given that outlook, the appetite for AIG shares could be limited.

One might suggest selling the furniture, but AIG already sort of did that, unloading its downtown New York headquarters to a condo developer. In the end, taxpayers may have to chalk up at least half of the AIG investment in the loss column.

Also from Deal Journal:
"Mean Street: Don't Be Brainwashed by the Housing Cult"

I had based my earlier comment on this tidbit from MarketBeat last December:

AIG Tangible Common Equity -$162.06 a Share, Analyst Says (AIG)

S&P equity analyst Cathy Seifert reiterated her hold on AIG shares, saying that the concerns about the health of some of the firm’s insurance units — spotlighted yesterday in a note from Sanford Bernstein that sent AIG tumbling – are somewhat offset by the news that AIG had closed on a deal with the New York Fed that effectively slashes the government-controlled insurance giant’s debt to the U.S. taxpayer by $25 billion.

AIG shares are up roughly 11% Tuesday, erasing some of the steep falloff seen Monday.

Still, Seifert noted that as of Sept. 30, the tangible common equity per share was a negative $162.06....