AIG In A Tough Position
Already owing $150 billion to Uncle Sam and about to report a $60 billion loss for last quarter, AIG must go back once again to the government to see if it can get better terms to it’s bailout plan. The initial $85 billion plan had a ridiculous interest rate attached to it but it was eventually reworked and expanded to it’s current agreement.
The company’s stock is trading at less than 1% of it’s 52 week high but much of that has to do with the fact the government now holds a 79.9% equity stake. Even if the company were to declare bankruptcy, the government is fairly confident it could get back it’s money from the sale of AIG’s assets but the whole point of bailing them out in the first place was to prevent the ensuing shocks to financial system.
AIG plans to sell off assets to repay the government but it’s a pretty tough time for that with credit conditions the way they are. Mergers and acquisitions activity has pretty much been nonexistent since credit markets seized up, so it’s difficult to find prospective buyers despite the fact prices are fairly depressed at the moment.
What AIG really needs is time more than anything, well that and another large infusion of capital. The financial crisis worsened after Lehman Brothers collapsed and the government knew it would have a serious repercussions on the banking system but it still let them fail because the company just didn’t have the assets to cover what the government would have needed to give them to keep them afloat.
The question the government is asking itself right about now is, how much are AIG’s remaining assets worth. That and how much more losses the company will take in the upcoming year.
