AIG
AIG to Borrow from Treasury as Part of Exit Plan
The U.S. government and American International Group Inc. (NYSE: AIG) on Wednesday announced a deal to accelerate repayment of taxpayer dollars and clear the road for the company to reclaim its independence.
Terms of the arrangement, which were outlined in September, call for the company to borrow funds from the Treasury Department to repay the remainder of its debt owed to the Federal Reserve, leaving the Treasury holding the bulk of the beleaguered company's common stock.
Once the world's largest insurer, AIG received more than $180 billion of bailout funds from the government to help cover investments that vanished during the collapse of the U.S. real estate bubble.
AIG and Government Looking to Accelerate Exit Strategy
Government officials are huddling with executives from American International Group Inc. (NYSE: AIG) to hatch a scheme to accelerate the company's plan to regain its independence and repay in full what the insurer owes U.S. taxpayers, according to a report from The Wall Street Journal.
Under the plan, the Treasury Department is likely to convert $49 billion of AIG preferred shares it holds into common shares, a move that could bring the government's ownership stake in AIG to above 90%, from 79.8% currently, The Journal reported, citing sources familiar with the matter.
The common shares would then be gradually sold off to private investors, a move that would reduce U.S. ownership and potentially earn the government a profit if the shares rise in value.
Cost to Fix Fannie Mae and Freddie Mac May Reach $1 Trillion
The cost to fix Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government-backed mortgage companies that bought or guaranteed three-quarters of all U.S. home loans last year, could run as high as $1 trillion, according to a report by Bloomberg News released yesterday (Tuesday).
The minimum amount required to keep them afloat will be $160 billion, or $15 billion more than they have already drawn from an unlimited line of government credit granted to keep the home mortgage market functioning. That exceeds the amount already spent on bailouts for American International Group Inc. (NYSE: AIG), General Motors Co. or Citigroup Inc. (NYSE: C).
"It is the mother of all bailouts," Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry told Bloomberg.
Fannie and Freddie own or guarantee 53% of the nation's $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Their books are loaded with millions of bad loans, and delinquencies are on the rise.
AIG Bailout Second-Guessed by Government Watchdog
A bipartisan Congressional watchdog panel reviewing the government's bailout of American International Group Inc. (NYSE: AIG) has raised doubts about whether U.S. taxpayers "will ever be repaid in full," and concluded that the U.S. Federal Reserve didn't act aggressively enough during the 2008 rescue.
In a lengthy report, the Congressional Oversight Panel also said the bailout had a "poisonous" effect on the U.S. financial system because it demonstrated the government would protect Wall Street firms from their own risk-taking.
The Federal Reserve could have acted earlier to find a privately funded solution for New York-based AIG before deciding on a rescue that transformed banks' financial bets into fully guaranteed government obligations, the panel said.
Germany's Short-Selling Ban Lacks the Political Muscle to Go Global
Hoping to win more public and political support for its involvement in the bailout of Greece, Germany has banned the naked short-selling of European sovereign debt instruments. However, other European governments are refusing to follow suit, highlighting the lack of political will that's needed to regulate the credit default swap (CDS) market.
German Chancellor Angela Merkel said that the ban would remain in place until the EU comes up with a comprehensive plan for financial reform.
"This will all remain in place until other rules are established on the European level," she said.
What Does Germany's Credit-Default-Swap Ban Mean for You?
[Editor's Note: Germany's credit-default-swap ban could be the first salvo in a new, global regulatory war. Here are three moves to make to protect your investments.]
Germany did something on Tuesday that I've been hoping would happen for three years: It outlawed naked short-selling and speculation on European government bonds with naked credit default swaps.
The financial institutions that have been profiting from this type of speculation immediately went on the offensive.
German officials justified the surprise, unilateral move by financial regulator BaFin by stating that the "exceptional volatility" in government debt – if accompanied by massive short-selling and naked CDS trading – could result in excessive price movements that would actually "endanger the stability of the entire financial system."
To learn about the strategies you should employ because of Germany's move, please read on…
Delay in Prudential's Deal for AIG's Insurance Unit Threatens U.S. Debt Repayment
Regulators in the United Kingdom threw a wrench into British insurer Prudential PLC's plan to buy American International Group Inc.'s (NYSE: AIG) Asian insurance unit, delaying its $21 billion rights offering until the two parties agree the combined company will have adequate capital.
The delay, or any disruption to the proposed takeover deal, could mean a major setback for AIG's efforts to raise funds to pay back its debts to the U.S. government.
Prudential had planned to issue a prospectus with details of the offering yesterday (Wednesday), including how many new shares will be issued and at what price to shareholders. But the British government's Financial Services Authority (FSA) put the deal on hold with a last minute request for further unspecified information.
Shareholder Concerns Snag Prudential's $35.5 Billion Deal For AIG's Asian Unit
Prudential PLC's (NYSE ADR: PUK) much-ballyhooed buyout of American International Group Inc.'s (NYSE: AIG) Asian insurance-unit – AIA Group Ltd. may be on the rocks as the U.K. insurer's shareholders balk at the price.
The proposed buyout calls for Prudential to hand over $35.5 billion to U.S. government-owned AIG. But Prudential's biggest investors are resisting the deal because they believe the company is paying an overly rich premium for AIA, according to sources cited by the New York Post.
Additionally, the method of financing the blockbuster deal puts too much pressure on Prudential shareholders to come up with $20 billion in cash through a rights offering.
"Capital Waves" Point to High-Tide Profits for Commodities, Tech and Emerging Markets
[Editor's Note: After Shah Gilani's recent essay on "capital-wave" investing generated our biggest response in months, we sat down with the retired hedge-fund manager and Money Morning columnist to find out about the profit opportunities he's looking at right now. Here's what Gilani had to say.]
It was November 2008, and a global financial crisis that started in the U.S. credit markets had already leveled such one-time corporate stalwarts as Lehman Brothers Holdings Inc. (OTC: LEHMQ), Fannie Mae (NYSE: FNM) and American International Group Inc. (NYSE: AIG). The U.S. economy was in an apparent freefall, and stock prices wouldn't hit bottom until early the following March.
In the midst of that chaos, Money Morning's Shah Gilani made five predictions, anticipating five looming "aftershocks" he said were certain to come true.
He was correct on all five counts – every prediction came true.
This wasn't the first time Gilani has made such bold predictions – and been proven right. In July 2008, for instance, when crude oil was trading at a record high of $145 a barrel, he predicted that the "black gold" was destined for a major fall – even though many pundits were calling for prices to spike as high as $200, $250, $300 and even $500 a barrel.
Once again, Gilani was right.
Gilani, a retired hedge-fund manger, Money Morning columnist and noted expert on the global credit crisis, has been able to do this time and again for one simple reason: He understands the power and profit potential of the global financial market's "capital waves."
"Capital waves create some of the biggest trading opportunities in the markets today," Gilani said in an interview last week. "Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don't."
And the profit plays that loom are shaping up as the biggest and best, yet.
For the full transcript of Gilani's detailed question-and-answer session, please read on.
AIG Sells Alico Unit to MetLife for $15.5 Billion, Raising More Cash to Pay Fed
American International Group Inc. (NYSE: AIG) today (Monday) agreed to sell its American Life Insurance Co. unit, better known as Alico, to MetLife Inc. (NYSE: MET) for $15.5 billion, taking yet another step towards paying off its U.S. government debt.
MetLife will pay $6.8 billion in cash and $8.7 billion in equity securities for Alico, AIG's second-largest foreign life-insurance business.
With a deal inked a week ago to sell its Asian life-insurer unit, American International Assurance Ltd. (AIA), to Prudential PLC (NYSE ADR: PUK) for $35.5 billion, the Alico sale means AIG is now expected to return $32 billion in cash to the Federal Reserve Bank of New York in the coming months – provided both deals close as scheduled by yearend.
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