AIG braces for the storm – with local implications
US insurance giant AIG is about to post its fifth straight quarterly deficit – and the largest quarterly loss in US corporate history. Predictions are for a mighty $US60 billion ($93 billion) downfall.
Until the results are unwrapped tonight and events unfold over the coming days and even hours – we expect the profitable Australian branch will have some things to say to the market – it’s difficult to speculate on the future of AIG globally or locally.
But there is no doubt AIG has an uphill battle in front of it, and there’s a lot of different courses things could take over time.
Since September 16, when the New York Federal Reserve handed out its first emergency loan of $US85 billion ($131.6 billion) – the biggest government bailout in history – AIG has accepted a total of $US150 billion ($232 billion) in government aid.
The injection of funds was intended to stabilise the embattled insurer following the announcement of a record third-quarter loss. The plan involved the US Treasury buying $US40 billion ($62 billion) in AIG preferred shares.
Now it looks likely that the Government will finance the purchase of some AIG businesses and take direct stakes in others as the insurer looks to any means to avoid a potentially disastrous credit downgrade.
The most likely course for the Government? It appears to be to swap its 80% stake for even bigger slices of three units that would be split off from the company.
The most likely targets are AIG’s Asian operations, the international life business and the US personal lines division – or even the entire property/casualty business.
The Government and AIG are also supposedly looking at the possibility of lowering the interest rate on the government’s credit line to the insurer, or altering terms of the government aid, such as eliminating or reducing the 10% dividend on the preferred stock.
Meanwhile, bids for AIG’s Asian assets took off on Friday. These include American Life Insurance, which generates more that half of its Japanese revenue, and a 49% stake in Hong Kong-based American International Assurance.
As with their overseas comrades, Australian brokers are reporting disquiet from clients wanting reassurance about the position of the beleaguered insurer.
In the US, brokers say clients have been actively looking to move away from AIG where commercially viable.
While AIG Australia has assured the industry it has not been affected by its parent company’s poor results and subsequent bailout, CEO Chris Townsend will spend the next few days detailing what it all means for the local and regional market.
If the US Government’s past comments that AIG is too big and too important to fail are anything to go by, the insurer will be around for along time to come. They fear that if AIG collapses it will trigger losses across the global financial system.
But then there’s the issue of the Government owning substantial slices of AIG – possibly in three juicy chunks. The Government wouldn’t want to hold on to the AIG assets any longer than it has to, so it’s quite likely that the giant which led the global insurance industry for so long will become just another insurance company.
Until the results are unwrapped tonight and events unfold over the coming days and even hours – we expect the profitable Australian branch will have some things to say to the market – it’s difficult to speculate on the future of AIG globally or locally.
But there is no doubt AIG has an uphill battle in front of it, and there’s a lot of different courses things could take over time.
Since September 16, when the New York Federal Reserve handed out its first emergency loan of $US85 billion ($131.6 billion) – the biggest government bailout in history – AIG has accepted a total of $US150 billion ($232 billion) in government aid.
The injection of funds was intended to stabilise the embattled insurer following the announcement of a record third-quarter loss. The plan involved the US Treasury buying $US40 billion ($62 billion) in AIG preferred shares.
Now it looks likely that the Government will finance the purchase of some AIG businesses and take direct stakes in others as the insurer looks to any means to avoid a potentially disastrous credit downgrade.
The most likely course for the Government? It appears to be to swap its 80% stake for even bigger slices of three units that would be split off from the company.
The most likely targets are AIG’s Asian operations, the international life business and the US personal lines division – or even the entire property/casualty business.
The Government and AIG are also supposedly looking at the possibility of lowering the interest rate on the government’s credit line to the insurer, or altering terms of the government aid, such as eliminating or reducing the 10% dividend on the preferred stock.
Meanwhile, bids for AIG’s Asian assets took off on Friday. These include American Life Insurance, which generates more that half of its Japanese revenue, and a 49% stake in Hong Kong-based American International Assurance.
As with their overseas comrades, Australian brokers are reporting disquiet from clients wanting reassurance about the position of the beleaguered insurer.
In the US, brokers say clients have been actively looking to move away from AIG where commercially viable.
While AIG Australia has assured the industry it has not been affected by its parent company’s poor results and subsequent bailout, CEO Chris Townsend will spend the next few days detailing what it all means for the local and regional market.
If the US Government’s past comments that AIG is too big and too important to fail are anything to go by, the insurer will be around for along time to come. They fear that if AIG collapses it will trigger losses across the global financial system.
But then there’s the issue of the Government owning substantial slices of AIG – possibly in three juicy chunks. The Government wouldn’t want to hold on to the AIG assets any longer than it has to, so it’s quite likely that the giant which led the global insurance industry for so long will become just another insurance company.