Credit Crunch
02/03/2009 Major Corporate Re-structuring for AIG following $62 billion 4th Quarter losses - 2nd March 2009
NEW YORK—American International Group Inc. reported a $61.66 billion fourth-quarter 2008 loss Monday and unveiled a new federal rescue plan that includes up to $30 billion in additional assistance, relaxed terms on funds already borrowed, and a major corporate restructuring that includes spinning off its property/casualty operations.
AIG said its results in the fourth quarter had been negatively affected by continued credit market deterioration and charges related to the company's ongoing restructuring efforts. For all of 2008, AIG posted a loss of $99.29 billion, compared with a $6.20 billion profit in 2007.
In detailing its plans for overhauling the company, AIG said it plans to form a general insurance holding company that will include its commercial insurance group, foreign general unit and other property and casualty operations. The holding company will be called AIU Holdings Inc. and have a board of directors, management team and brand distinct from AIG.
The establishment of the new holding company will help AIG prepare for the potential sale of a minority stake in the business, the company said.
Group, will be president of AIU Holdings Inc. Nicholas Walsh, currently president and CEO of American International Underwriters, will be vice chairman of the new holding company.
The restructuring plans were announced as part of a broad package of measures, taken in cooperation with the Department of the Treasury and the Federal Reserve, aimed at shoring up the company's capital structure, protecting the value of its key businesses and positioning those franchises as more independently run, transparent companies, AIG said.
"We believe the company's overall conglomerate structure is simply too complicated, unwieldy and opaque for its component businesses to be well-managed as a single mammoth corporation, and that is particularly true in this economic environment," Edward M. Liddy, chairman and CEO of AIG, said during an AIG conference call. "AIG needs to take additional steps to maintain the viability of its core businesses and position them as clearly separate independent entities worthy of investor confidence."
Mr. Liddy added that "over next couple of years, we will restructure AIG from a conglomerate to independent, self-governed businesses."
"We are very sensitive to the erosion of our franchise value," AIG Chief Financial Officer David Herzog said during the call. "We want the financial strength of that company to be evident to all of the customers in that business, so we can prevent franchise erosion."
Among other actions, AIG will contribute the equity of American International Assurance Co. and American Life Insurance Co. into special purpose vehicles. This will enable the Federal Reserve to receive preferred interests in repayment of part of its loan facility to AIG.
