From the WSJ:
“American International Group Inc. is in discussions with the government about Washington backstopping some of its troubled assets and is considering selling units through initial public offerings. (…)
Backstopping of assets would be similar to government guarantees on troubled assets owned by Citigroup Inc. and Bank of America Corp.
Were the federal government to extend to AIG the approach used with those banks, that could lessen some of the pressure on AIG from distressed assets still on its books. It could also mean the government wouldn’t need to lay out as much money upfront. In AIG’s case so far, the government has bought assets rather than backstopped them.
The discussions reflect a potentially major shift in how AIG and the government, which got an 80% stake in the firm from the bailout, approach the situation facing the company, which is trying to repay a government loan of as much as $60 billion that is part of the bailout. As of Wednesday, it had borrowed $38.3 billion. A spokesman for the Federal Reserve, which made the loan, declined to comment.
The discussions also reflect the reality that the financial crisis has made AIG’s initial strategy for repaying the loan — selling off assets — increasingly difficult. Finding buyers willing to pony up tens of billions of dollars — or able to borrow such sums — has been an uphill battle.
So far, AIG has announced sales of only a few smaller businesses that, at least based on deals where a sale price was announced, will earn it a little over $1 billion. That is about what AIG is paying employees in retention payments to keep them from leaving for rivals, which could further erode the value of its units.”
Ah, yes: those retention bonuses. I can see paying bonuses to people who did well last year, and helped keep AIG from being in even worse financial shape. But I can’t understand this at all:
“American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.
About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse. (…)
“I was extremely disappointed — but not surprised — to learn that AIG will be awarding bonuses to the very division that drove the company into the ground,â€ said Representative Elijah Cummings, a member of the House Committee on Oversight and Government Reform, in an e-mail. AIG shouldn’t be awarding “millions of unmerited dollars to employees while at the same time begging the U.S. government for financial life support.””
I find it hard to understand why anyone would offer bonuses to the very people who just single-handedly sunk the company. AIG says it’s because it needs them to help unwind their positions. Is there no one else on God’s good earth who could do that, and who wouldn’t be inept enough to lose $34 billion and put the global financial system at risk? Is there any such thing as failure in the world of finance?
And why, exactly, did we go along with this? We, the taxpayers, own 80% of AIG. Presumably, we could have stopped this. Why on earth didn’t we? If it comes to that, haven’t we had enough time to prepare for further AIG losses? I understand why we couldn’t let them go under out of the blue, but if they were going to take another big hit, couldn’t we have done some sort of gradual, orderly bankruptcy between last October and now?
I don’t get it. If anyone does, please feel free to enlighten me.