Thursday, June 25, 2009

Government Taking Stakes In Two AIG Insurance Companies

WTF? The wire reports state AIG is "paying back" $25 billion to the government. Well, sort of, but here's how it is really going down.

Under the deal, AIG will give the New York Fed preferred interests in its two largest life insurance units outside the United States — American International Assurance, or A.I.A., and American Life Insurance Company, or Alico.

The Fed will hold an equity stake in A.I.A. worth $16 billion, and a stake in Alico worth $9 billion, according to the AIG statement.

Curiously, the statement says that:

The face value of the preferred interests represents a percentage of the estimated fair market value of AIA and ALICO.
But, then the statement does not provide what the percentages actually are. Does this smell or what?

Last month AIG said that it would "accelerate steps" to spin off AIA through a public listing on an Asian stock exchange, as part of its efforts to repay a government bailout totaling up to $173.3 billion. This is part of that step, but clearly the government doesn't appear to be planning on an immediate liquidation of its position at the time of the IPO. More curious paper in the drawer of the Fed.

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