CHARLOTTE, N.C. — American International Group Inc. will be allowed to use $20 billion of assets held by its subsidiaries to provide cash needed for the troubled insurer to stay in business, New York Gov. David Paterson said Monday.
The move comes as AIG continues to review its operations and discuss alternatives with outside parties, reportedly including Warren Buffett's Berkshire Hathaway Inc., to improve its business amid concern that the world's largest insurer could need up to $40 billion to shore up its balance sheet.
As AIG scrambles to raise money, company observers wonder if its Nashville-based American General Life and Accident subsidiary, which employs 900 in Middle Tennessee and 5,000 nationwide, could be sold.
Ira Zuckerman, an insurance industry consultant in South Londonderry, Vt., said he had expected AIG to sell off AGLA, which it inherited as part of its 2001 acquisition of American General Corp. of Houston, a long time ago.
"That would be one of the obvious things they could sell off because it's not core to the rest of (AIG's) operations," Zuckerman said.
Selling AGLA, however, might not fetch enough money to make a big difference, Zuckerman said. "Nobody knows what's being talked about, what's being shopped," he added. "We'll have to wait to find out."
James R. Tuerff, a former president of American General Corp. and ex-CEO of the locally based American General Life and Accident subsidiary, cited previous comments by AIG's management that the company plans to hold on to its insurance business which remains intact. "It's critical I believe to AIG," he said about AGLA.
All options exploredAIG has said it is exploring all options to help bolster a balance sheet battered by a downturn in the credit and mortgage markets. Those losses over the past year have come amid a sharp increase in defaults among mortgages. As mortgages have increasingly de-faulted, investors have worried that bonds backed by the troubled loans would also default, driving their prices down. That has forced companies like AIG to slash their value.
"It's not like they have excessive claims," said Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte. "What's going on is the same thing that's going on in the banking industry. They are writing down their assets because they've got assets that are not worth what their balance sheet says they're worth."
Calls made Monday to AIG were not immediately returned.
AIG chief executive Robert Willumstad has indicated that he was willing to shed some assets, saying about a month ago that a "less complex AIG would be a better competitor."
"We're assessing all of our businesses and looking at options for how AIG ought to compete in the future, what kind of businesses we ought to be in," AIG spokesman Nicholas Ashooh said Sunday night.
AIG operates a range of insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services.
"We believe AIG will survive, but we have little indication of how many business lines will ultimately need to be sold and how dilutive to shareholders' future capital raising efforts will be," wrote Citi Investment Research analyst Joshua Shanker in a note to clients.
AIG's aircraft-leasing arm, International Lease Finance Corp., posted record results in the second quarter. As recently as June, AIG considered shedding ILFC, a company founded in 1973 that has a fleet of more than 900 airplanes valued at more than $50 billion. But newly appointed Willumstad said after reviewing ILFC's business, "ILFC should be a part of the AIG portfolio." ILFC primarily leases aircraft from Boeing Co. and Europe's Airbus to major airlines and had net income of more than $200 million in the second quarter.
Company has been hitAIG has been battered over the past year by billions of dollars of losses tied to deterioration in the mortgage and credit markets.
Shares of AIG — once the world's most valuable insurer by market value — fell $7.38, or 60.8 percent, to $4.76 in afternoon trading.
According to news reports, New York-based AIG was seeking $40 billion in emergency funds —possibly from the Federal Reserve — to help the insurer avoid a credit rating downgrade, which would make it more expensive for AIG to raise money. AIG has already raised $20 billion in new capital this year.
Berkshire Hathaway spokeswoman Jackie Wilson said Buffett was not available Monday to comment on the AIG-rescue reports. Typically, Berkshire does not comment on deals before they are completed.
AIG is in a precarious position, in part, because of a potential downgrade to its credit ratings and how that would affect its portfolio of financial instruments known as credit default swaps. The swaps are essentially insurance coverage to protect investors against defaulting bonds or debt.
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