AIG's Net Income Sours But It Will Not Pay Tax on Tens of Billions of Dollars; AIG Owes Taxpayers $182 Billion from 2008 Bailout

AIG Posts Huge 4th-quarter Profit on Tax Benefit

February 23, 2012

Reuters - Bailed-out insurer American International Group reported a $19.8 billion profit for the fourth quarter, after an accounting change that allowed the company to record an enormous one-time benefit.

The move, which sent the company's shares up by about 6 percent, essentially means AIG will not pay tax on tens of billions of dollars in income in the coming years, thanks to benefits that stem from its financial crisis-era losses.

AIG said in the third quarter that its results in the fourth quarter would determine whether it could release a so-called valuation allowance against the tax assets.

Having determined it is more likely than not to be consistently profitable in the future, it released most of the allowance, nearly $17.7 billion, in the quarter.

Some of the allowance, related to the company's life insurance business, was not released, a determination that future profits are not as immediately certain there. It may still be released in the future, though, which would again add to the company's bottom line.

The future of the tax assets has been a key question for investors, with some analysts suggesting the value of the assets made up as much as a fifth of AIG's stock price. Fund manager Bruce Berkowitz, AIG's largest non-government shareholder, has said the value of the assets was underestimated by the market.

AIG shares rose to $29.70 in after-market trading from a $27.99 close in regular trading on the New York Stock Exchange. At that after-hours price the stock is now above the U.S. Treasury's breakeven point on its 77 percent stake in the company.

There is no time table for the government to sell the remainder of that stake, the last vestige of its $182 billion bailout of what had been the world's largest insurer.

NET INCOME SOARS

Net income was $19.8 billion, or $10.43 per share, compared with a year-earlier profit of $11.18 billion, or $16.60 per share.

AIG's share count rose year over year, explaining the earnings-per-share discrepancy. In the year-earlier period the company recorded a huge one-time gain on asset sales that inflated results.

On an operating basis, the company earned 82 cents per share. Analysts polled by Thomson Reuters I/B/E/S on average expected 63 cents.

AIG's global property insurance unit, Chartis, returned to profitability in the quarter. It earned $348 million, despite $368 million in catastrophe losses related to the flooding in Thailand. AIG said Chartis experienced stronger pricing, and premiums written increased on growth in its consumer business.

SunAmerica, AIG's U.S. life insurer, reported a smaller profit of $931 million in the quarter, as net investment income declined.

SunAmerica also reported a $105 million increase in reserves in the quarter, like other life insurers have of late, for death benefits that may be due to policyholders but have not been claimed yet. Various states have been probing whether insurers were doing enough to ensure that such claims are paid.

AIG also benefited in the quarter from a rise in AIA Group's share price, booking a $1 billion gain.

AIG spun AIA off in a Hong Kong IPO in late 2010 but still owns one-third of the company. When AIA is up AIG profits, though the opposite is also true. To stem that volatility, top AIG executives have recently floated the idea of buying back a majority stake in AIA, though they have also said it would not happen anytime soon.

ILFC, the airplane leasing business AIG is planning to take public, returned to profitability in the fourth quarter, even with a $40 million charge related to recent airline bankruptcies. United Guaranty, AIG's mortgage insurer, posted a loss as new delinquencies remained elevated.

AIG Selling $6 Billion of AIA Shares, to Repay Bailout

March 5, 2012

Reuters - American International Group (AIG) is selling part of its stake in AIA Group to raise about $6 billion to help the U.S. insurer repay a huge federal government bailout.

AIG is looking to place some 1.7 billion AIA shares in a range of HK$27.15-27.50 per share - a discount of up to 7 percent to Friday's AIA closing price, according to a term sheet seen by Reuters on Monday. The shares will go to institutional investors, and AIG expects to use the net proceeds to reduce the balance due to the U.S. Treasury Department's preferred equity interest in a special-purpose vehicle (SPV) in which AIG holds the AIA shares.

The U.S. Treasury owns 77 percent of AIG following a massive $182 billion bail-out in the wake of the 2008 global financial crisis. AIG holds around a one-third stake in AIA which, at Friday's close, was worth $14.9 billion. As of end-December, AIG owed the Treasury $8.4 billion to redeem interests in the AIA SPV.

Institutions may be drawn to the offering by AIA's strong performance since it listed in a $20.5 billion Hong Kong IPO in 2010 - Asia's third-largest public listing - but a big run up in its stock price may have some feeling the offer is expensive.

But, with such a large sale on to the market and AIA's free float increasing, the company's weighting on benchmark indexes should rise, making it a target for fund managers tracking the Hang Seng and the Hang Seng Finance Index.

"The issue of getting the deal through shouldn't be a problem, plus there should be some index buying," said the head of a large U.S.-based asset manager in Hong Kong, who was not authorized to speak publicly on the AIA sale.

Kenneth Yue, Hong Kong-based analyst at CCB International Securities, said the sale looked well timed.

"AIG is doing this at the right moment. If you look at AIA's new business growth last year, it went up 40 percent. I believe they've gone to the peak already - it would be very challenging for them to increase their new business value going forward by 40 percent every year."

BANK CREDIT

Deutsche Bank and Goldman Sachs are the "active" joint global coordinators (JGCs), according to two sources with direct knowledge of the process, who did not want to be named as they are not authorized to speak publicly on the matter.

Deutsche and Goldman were among the four banks that led AIA's IPO, along with Citigroup and Morgan Stanley. The sources said Citi and Morgan Stanley were taking "passive" JGC roles in the current AIG sell-down.

The distinction is important not just for the fees that are paid on such a large offering, but also in the league table credit that can help a bank's external marketing. For the AIA sell-down, the banks will get equal league table credit, but Deutsche and Goldman will take home the fatter fees, according to one of the sources.

The deal should be "well-distributed" among different investors, instead of large chunks going to just a handful of buyers, the source noted.

Shares of AIA, headed by former Prudential Plc executive Mark Tucker, have risen 47 percent since early-October, and last week touched a 7-month high. The shares closed at HK$29.20 on Friday.

CROWN JEWEL

AIA was founded in Shanghai in 1919 by U.S. entrepreneur C.V. Starr. Twenty years later, Starr temporarily relocated to the United States to avoid political instability in Asia and, following the Second World War, decided to run his U.S. businesses from New York. Those businesses came to be known as AIG, and its shares began trading in New York in 1984.

Now Asia's third-largest insurer, AIA has built a sprawling and successful business across the region, with an army of hundreds of thousands of agents.

AIG was forced to spin off AIA, its 'crown jewel', and other assets following the U.S. government's rescue of the stricken U.S. insurer after the financial crisis.

AIA's initial public offer came after a surprise, but ultimately doomed, bid by British insurer Prudential.

AIG Chief Executive Robert Benmosche has been coy about his plans for the AIA stake. As recently as February 24, AIG said it had not decided what to do with the stake, and had earlier hinted it may even increase its holding.

AIG can sell around $8 billion of its stake under the terms of its AIA stake ownership. The lock-up on the remainder expires late next month. Pricing of the AIA share sale will occur no later than Tuesday, AIG said.

On Friday, AIG sold its entire $500 million stake in private equity firm Blackstone Group, according to a source familiar with the situation, as part of an ongoing effort to monetize non-core assets, reduce risk and deleverage.

After AIG's recapitalization early last year, the U.S. government was left with a 92 percent stake in AIG's common stock, and preferred interests in two SPVs - one holding a stake in MetLife and one the AIA stake.

Following a variety of stock sales and other asset disposals, the MetLife SPV has been paid off and the Treasury's stake in AIG reduced to 77 percent. It is expected to sell that in coming years, aiming to recoup at least $28.73 per share to break even on the rescue investment.

AIG said last month the Treasury's remaining interest in the AIA SPV was $8.4 billion.

The proceeds from the stake sale announced on Monday will go towards paying down that balance - leaving around $2.4 billion - far less than the value of the remaining AIA shares held by AIG.

Flashback: Global Taxes and Global TV Now on the Agenda

In addition to global taxes, “The Global Agenda 2009” report urges creation of a global television channel

January 26, 2009

AIM Report - President Obama’s pick for Treasury Secretary, Timothy Geithner, is being urged to lay the foundation for “global governance” by considering “international taxation” measures to loot more money from U.S. taxpayers.

The recommendation is included in the report, “The Global Agenda 2009,” which is being considered by the World Economic Forum (WEF), meeting in Davos, Switzerland, January 28 - February 1. The WEF is not an official government group but does include dozens of government, corporate and labor leaders at its annual meetings.

Media companies such as News Corporation (parent of Fox News, the Fox Business Network, and the Wall Street Journal), CNBC, and Forbes are official sponsors of the WEF meeting. News Corporation is listed as one of about 100 “strategic partners” of the World Economic Forum.

“Look for live coverage on CNBC, all day every day,” reports CNBC “Squawk Box” co-anchor Becky Quick. “We kick things off at 6 a.m. Eastern time Wednesday on Squawk, with serious interviews from the headliners.”

Her report, however, fails to disclose that CNBC is an “industry partner” of the World Economic Forum this week.

CNBC is a subsidiary of General Electric, whose GE Capital is receiving a $139-billion taxpayer-financed loan guarantee as part of the Wall Street bailout. CNBC’s sister networks are NBC and MSNBC.

Other “industry partners” of the WEF include Reuters, the British-based news agency. A Reuters story about the meeting that starts on Wednesday sounds like a press release from the organization, hailing its “achievements” over time but failing to note that Reuters is a sponsor of this year’s event.

CNBC is advertising a “No Way Back – the Road to Recovery” debate hosted at the conference by CNBC’s Maria Bartiromo. One of the participants is Steve Schwarzman, Chairman, CEO and co-founder of the Chinese-funded and partly owned Blackstone Group.

Representing Chinese economic dominance in what Henry Kissinger has labeled a “New World Order,” Chinese Premier Wen Jiabao is speaking to a special session of the conference on its first day.

The event’s corporate sponsors, which pay about half a million dollars each to participate, include several failing institutions that have received tens of billions of dollars from U.S. taxpayers. They include Bank of America, Citi, Goldman Sachs, JPMorgan Chase & Co., and Morgan Stanley. These entities are termed “Strategic Partners” of the World Economic Forum.

But will CNBC highlight this kind of extravagant spending when the cable business network is helping sponsor the event?

In a major embarrassment, the WEF has released a report, “The Future of the Global Financial System,” which acknowledges “intellectual stewardship and guidance” provided by a steering committee co-chaired by John Thain, the former Merrill Lynch & Co. chief executive officer who was recently ousted from Bank of America in a scandal. Thain oversaw the disastrous sale of Merrill Lynch to Bank of America and was criticized for lavish spending on office decorations, including a $1,405 waste basket and $87,784 rug.

The other co-chair of the committee was David Rubenstein, co-founder and managing director of The Carlyle Group, who has been quoted as saying that China holds the key to the world economy’s future. One report notes that Rubenstein says Carlyle “was an early investor in the Chinese marketplace,” that its China office “has hired many native-born Chinese, and the company is seeking to build its buyout and growth-capital businesses there.”

“The Global Agenda 2009” report says that “sovereign states do not adequately address problems reaching across borders” and that “international taxation” may be needed to generate the “additional resources” for “global governance.”

Could this become a source of new bailout money here and abroad?

“As current global governance problems come from market failures, sovereign failures and intergovernmental failures that cross boundaries, sacrificing sovereignty for greater gain may become an option,” the report says.

The report says the U.N.’s Law of the Sea Treaty, which is a top priority for Senate ratification under the Obama Administration, is a measure that has “earned the acceptance and compliance” of most nations. The treaty would turn over oil, gas, and mineral resources to the U.N. and authorize access to them through payment of a global tax to a U.N. body.

The so-called “Council on Global Governance” of the World Economic Forum includes Anne-Marie Slaughter, dean of the Princeton University Woodrow Wilson School of Public and International Affairs who has been picked by Secretary of State Hillary Clinton to run the State Department’s Office of Policy Planning. Slaughter wrote the 2004 book, A New World Order.

In terms of media interest and backing for the controversial event, one of the co-chairs is Rupert Murdoch, chairman of News Corporation, the Fox News Channel parent company. Another co-chair is Kofi Annan, the disgraced former U.N. Secretary-General. As director of U.N. peacekeeping, Annan was accused of ignoring genocide in Rwanda. As Secretary-General, he was investigated for presiding over the oil-for-food corruption scandal involving Saddam Hussein’s Iraq regime.

Annan, however, claimed that he was “exonerated” by a report issued by Paul Volcker, the former U.S. Federal Reserve chairman and now one of Obama’s chief economic advisers.

In the past U.S. officials have been major participants in the World Economic Forum. But it’s not clear if any of Obama’s top officials will be going to this year’s event. However, some of his labor backers, including Andrew Stern of the Service Employees International Union, and John Sweeney, president of the AFL-CIO, are listed as participants.

In addition to global taxes, “The Global Agenda 2009” report urges creation of a global television channel.

“Media has the capacity to connect the world, bridging cultures and peoples, and telling us who we are and what we mean to each other. The media can also ensure that no voice goes unheard,” it says. “We believe that this new moment also calls for a new media platform, across all media channels, a global non-profit ‘CNN’ providing a new form of independent journalism to inform, illuminate and deepen knowledge about issues that improve the state of the world.”

The report doesn’t explain how this new global TV channel will be financed. But global taxes cannot be ruled out.

Perhaps this new era of transparency and disclosure can start with disclosing details about media sponsorship and backing of the World Economic Forum and its plans for “global governance.”

Flashback: A New Abuse on Wall Street

August 11, 2009

The Boston Globe - ...One new abuse that should be stopped before it spreads: big private equity companies, which are largely unregulated, are hungry to take over failed banks. Their argument is that the banks need new capital, and the private equity firms have it. But this is a profoundly bad idea.

Today, the FDIC is sitting on an inventory of failed banks that it needs to unload, and an insurance fund that it needs to replenish. Enter shadowy and unregulated private equity outfits like the Carlyle Group and Blackstone Capital, who are circling like vultures. The FDIC has done the hard part — at taxpayer expense: it has eaten the losses and cleaned up the failed banks’ balance sheets, making them appetizing targets...

In earlier deals, the FDIC has bent its own rules somewhat: it doesn’t permit any single private firm to own a bank, but in the $32 billion collapse of Indy Mac last year, the agency permitted a consortium of private equity firms to be the buyer.

Last month, the FDIC proposed to toughen its policy. It put out a draft policy statement for comment, signaling that it would prefer to merge failed banks with other banks, or to find investors other than private equity conglomerates. It proposed to prohibit self-dealing by firms acquiring failed banks, and to exclude firms based in offshore tax-havens. And if a private equity firm acquired a bank, it would be required to have higher ratios of capital because of its inherently riskier business strategies.

The private-equity companies have mounted a fierce lobbying campaign to soften the terms, arguing that the banking industry needs the capital. But the FDIC, the rare agency in this whole crisis that has put the public interest first, should hold the line.

In financial crises, conflicts of interests by insiders tend to mutate. We got into this mess, after all, because federally guaranteed banks were behaving like compulsive gamblers. Let’s not repeat these abuses in new forms.

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