AIG Asking For More Bailout Money, Despite Being An Obvious Candidate For Bankruptcy

Yes, that’s right. AIG, the greedyguts who took $150bn of the first $700bn allotted for bailing out the entire US economy, not just insurance companies with over-leveraged portfolios, is asking for yet more money off the government. It comes as the financial world heads into ever deeper waters in search of a place to finally bottom out – the Dow Jones is at a 12-year low, Citigroup is looking like it’ll get even more equity taken on by the government, and AIG themselves are poised to post a $60bn quarterly loss, the largest ever in corporate history. 

AIG, under former CEO Joseph Cassano, played around with derivatives that neither he nor his team understood, yet fired anyone who questioned their wisdom. They also headed off to get their nails done at a luxury spa on the state’s money, twice. The knee-jerk reaction is to send them off to bankruptcy, but after the massive loss of confidence created by allowing Lehman Brothers to fail, to do so was unthinkable, the result being these dribs and drabs of bailout cash that are taking AIG closer and closer to full nationalisation. It’s now being eaten away at both sides – on one side is the government taking on equity and shares in exchange for cash to keep AIG’s liquidity going, on the other is shedding of assets to pay for the loans that the government gave them in the first place.

These include the small ($60.5m from the sales of hedges in the energy industry) to the much larger (an $11.2bn has been made by MetLife for the American Life Insurance Co. unit). Even if the MetLife deal goes through at that price, unlikely given the loss that’s about to be announced and a worrying bit of tax law, sales of assets would cover less than a tenth of the total that AIG owes to the government.

They’re also planning to restructure the existing loan by converting preference shares (which demand a 10% dividend payout) to common stocks (which don’t) – they won’t now have to make a massive payout, but they just got a lot less attractive to investors, who were already regarding it as an end-of-the-night, six-pint sort of company in the first place – its stock market value has dropped 99% in the last 12 months. 

AIG have denied they’re going to go bankrupt, though they have hired a legal team. But why aren’t we letting it go bankrupt? As istockanalyst notes: “Most of AIG’s subsidiaries are probably fine, and don’t need any help. Those that might fail don’t pose any systemic risks.” Just let the core go, and let the subsidiaries survive on their own – with a dwindling investor base put off by the lack of dividend payments and that massive loss, an investigation by the Serious Fraud Office over toxic assets, and a recession in which more and more assets are likely to go sour, this is a company that isn’t going to make it. It’s being whittled away by incremental government intervention – let’s hope Geithner and co have the balls to cut their losses.

And maybe Joseph Cassano will eventually end up going the way of his Italian rapper namesake, a member of the crew Fuckin’ Camelz ‘N Effect (?!) before he died of a cocaine overdose. Well, we can dream, right?

Posted by Ben Beaumont-Thomas in Hot Money | February 24, 2009 2:22PM |