AIG's Miller Says U.S. May Profit on Bailout

By Paritosh Bansal
September 29, 2010

NEW YORK (Reuters) - American International Group Inc is seeing plans to free itself of U.S. government support start to come together two years after it was bailed out and expects taxpayers to profit from their investment.

AIG is close to finalizing a plan for the government to sell its stake in the insurer, which would see the Treasury Department convert $49 billion of preferred stake into common shares to be sold over time, Chairman Steve Miller said on Wednesday.

AIG also is close to a deal to sell two life insurance units in Japan to Prudential Financial Inc for about $4.8 billion in cash, a source familiar with the matter said.

The developments show AIG is making significant progress in disentangling itself from the government, although it still has a long way to go before the U.S. taxpayers get paid back in full for their $182.3 billion rescue package.
An announcement of the repayment plan, which another source said could come within days, would also mark a big win on a politically charged bailout for the government at a crucial time. The $700 billion Troubled Asset Relief Program, or TARP, set up amid the 2008 financial crisis expires on Sunday and the United States is set to go to polls for mid-term elections in November.
AIG has not drawn on all the assistance and needs to pay back around $100 billion, with the money going to the Federal Reserve Bank of New York and the Treasury. The government also owns nearly 80 percent of AIG.
"We want to get the total to zero," Miller told reporters on the sidelines of a conference. "If we are successful and do as well as we hope then actually the government would have walked away with a big profit."
Miller, a corporate turnaround specialist, alluded to his role at Chrysler in early 1980s, when the government made a roughly $300 million profit for backing a $1.2 billion loan to the automaker.
Chrysler had a 10-year deal with the government and paid it back in three years, Miller said.
Still, a profitable exit for AIG will require patience and several factors to line up favorably, such as macro trends in life and general insurance that AIG sees as its core, Aite Group senior analyst Clark Troy said.
"To exit at a big profit, there needs to be dynamism," Troy said. "There needs to be a highly positive feeling about their operating results and their prospects for growth."
AIG shares were up 1 percent at $37.70 on the New York Stock Exchange on Wednesday afternoon.
BOARD MEETING
The insurer's board is meeting later on Wednesday to discuss the exit plan, Miller said at the Dow Jones Private Equity Analyst conference in New York.
Miller, who took over as chairman of the company in July, said that talks with the government were nearing a conclusion that could be a "win-win" deal for stakeholders.
But he pointed to complexity of negotiations, saying the plan had to work for several different parties like the Treasury, the Fed, the trust that holds the Treasury's stake as well as the ratings agencies.
"We are talking to several different parties in the government. And we are working off documents that were created with care but with haste two years ago when the world was falling apart," Miller said.
Miller said the exit plan will give AIG the ability to issue new debt.
"We think with the clarity of what we hope to get done here in the current discussions, we will be able to re-access the public markets sometime over the next six months to a year," he said.
A conversion of the Treasury's preferred stock into common could start as soon as the first half of next year and will see the government's stake in the insurer increase to more than 90 percent before being sold over time, sources have previously told Reuters.
"It will be a matter of balancing the speed of exit versus maximizing the value realized by the taxpayers," Miller said.
AIG's board would finalize the exit plan on Wednesday and could announce the plan on Thursday, CNBC reported, citing senior government officials.
PRUDENTIAL DEAL
A deal to sell AIG Edison Life Insurance Co and AIG Star Life Insurance in Japan to Prudential, which the source said is expected to be announced soon, will be the latest divestment by the company in its repayment efforts.
Prudential, which already has a significant presence in Japan, said earlier this month it sees sustainable growth potential there, driven by an aging population and demand for retirement and savings products.
"They have a strong franchise their and it strengthens their position there even further," Troy said.
The U.S. insurer also is flush with cash, Troy said. "It was presumed that Prudential was going to make an acquisition."
Prudential and AIG declined to comment on the expected deal. The source is anonymous because the deal is not yet public.
Prudential's shares were up 1.2 percent at $56.46 on the New York Stock Exchange on Wednesday afternoon.
The bailout terms call for the Fed to be paid back before the Treasury. AIG still owes the Fed about $20 billion under a credit facility. The Fed also owns some $25 billion worth of preferred interest in two of AIG's foreign life insurance units that must be monetized.
AIG also expects billions more to come in by the end of the year as it closes on the sale of American Life Insurance Co to MetLife Inc for $15.5 billion in cash and stock, and lists AIA Group in Hong Kong to raise an estimated $15 billion.
Miller said the stock component of the MetLife deal was an important asset, but "not one that we want to hang on to forever."
"That would be a part of the package that would give the government exposure that's diversified -- not just AIG," Miller said.
(Reporting by Paritosh Bansal in New York and David Lawder in Washington, additional reporting by Soyoung Kim; Editing by Robert MacMillan and Matthew Lewis)

http://abcnews.go.com/Business/wireStory?id=11755973