Dear Daily Kos Community:
Given the vigorous discussion about AIG, we decided to use this forum to interact directly with the Daily Kos community. It is our goal to post important developments here, set the record straight when appropriate, and of course try to answer your questions as quickly and as fully as possible.
I'd like to make three quick points before posting the first group of questions and answers:
This interactive format is not typical for most companies, including AIG. Our communications to the public have generally been our SEC filings, press releases, and presentations to investors, industry analysts, and other members of the investment community. But we understand our company is in a very different position since we received support from the U.S. government, and we wanted to try something different to be more accountable to taxpayers.
We know that there are tough questions out there. Some questions we may not be able to answer, and if that's the case, I will try to explain why. Other questions may take time to answer, as we gather accurate information from proper channels.
Finally, we know many questions will revolve around the day-to-day decisions AIG makes as a business. AIG’s top priority is to pay back the U.S. government's investment in AIG. To do that, we have to make the decisions necessary to run our business successfully. We know that our business rationale for some of those decisions may not always be accurately portrayed by some, and that's one of the reasons that we want to do this forum, to explain how AIG’s decisions are in the interest of maintaining the value of its businesses and repaying taxpayers.
We appreciate this opportunity, and hope that we can contribute constructively to the conversation on Daily Kos.
AIG Media Relations
Will cash alone allow AIG to remove the liability of the incredibly leveraged instruments that got you into this awful mess, or will time and different general economic conditions be required to stabilize those instruments? Elaborate.
No. The new agreement that we announced with the U.S. Treasury and the Federal Reserve Bank of New York (FRBNY) last month is a holistic approach to address our liquidity issues, including a combination of equity and debt. Using the new tools included in TARP, which allows the government to invest in banks and has a lot more tools to help companies in financial distress, we brought in new equity capital, significantly reduced outstanding debt under the Fed facility, extended financing terms from two years to five years, and lowered AIG’s interest rate and fees.
In addition, the new plan directly addressed our securities lending and credit default swap concerns by creating two financing entities. These entities are acquiring our residential mortgage-backed securities as well as securities from our counterparties and are designed to resolve the liquidity issues AIG has experienced in its credit default swap portfolio and its U.S. securities lending program.
For more information, please see either this press release, or this more recent press release.
When--specify a month and year-- should we expect to see our money back, and in what form?
AIG’s top priority is to repay the loan from the U.S. government – in full, with interest. In the December 3rd edition of The Wall Street Journal, AIG Chairman and CEO Edward Liddy was quoted as saying, "My goal is to pay back every single penny."
One of the primary ways we plan to accomplish this is through divestitures of our businesses. Over the last couple of weeks, AIG announced its first divestitures, including the sale of AIG Private Bank and a stake in two joint ventures. While we have a five-year horizon on the Federal Reserve credit facility, the timing of full repayment of the loan will depend on the successful execution of AIG’s divestiture plan.
In the meantime, AIG will be paying interest on the up to $60 billion loan we have received. AIG is paying an interest rate of three-month LIBOR (at 4.053 percent until December 31st when the LIBOR rate will reset) plus 3.0 percent on borrowed amounts and 0.75 percent on unborrowed amounts. (As of last Wednesday, December 18, AIG had outstanding borrowings of $41.550 billion, consisting of borrowings and capitalized fees and interest). In addition, AIG is paying the government $4 billion each year in dividend payments from the Series D preferred shares that AIG issued in November.
The U.S. government and AIG both have a potential upside on the assets that we’ve transferred to our new financing entities discussed in the previous answer. The government gets five-sixths on the upside of the securities lending and two-thirds on the credit default swaps. AIG gets the remainder in each case.
Does AIG plan to engage in any mergers and acquisitions within the next two to three years, or whatever time period the government assistance is for? If "yes," or "maybe," will any of the government assistance be used for the mergers and acquisitions?
AIG’s priority right now is to execute on its divestiture plan while maintaining focus on serving its customers.
Will AIG support, and lobby for, a repeal of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?
No. AIG has stopped all of its lobbying activities as part of a comprehensive, ongoing review of its business activities and expenses.
Lastly, we need to put this at the end of all of our postings.
It should be noted that the statements on this site call may contain projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to asset dispositions, liquidity, collateral posting requirements, management, operations, products and services, and assumptions underlying these projections and statements. It is possible that AIG's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these projections and statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in the specific projections and statements are discussed in Item 1A. Risk Factors of AIG's Annual Report on Form 10-K for the year ended December 31, 2007, and in Item 1A. Risk Factors and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of AIG's Quarterly Report on Form 10-Q for the period ended September 30, 2008. AIG is not under any obligation (and expressly disclaims any such obligations) to update or alter any projection or other statement, whether written or oral, that may be made from time to time, as a result of new information, future events or otherwise.<a</p>