Treasury Secretary Timothy Geithner looked past the collapse of an American International Group deal to sell off a subsidiary, saying the insurance giant has other options for paying back its $182 billion government bailout.
Geithner addressed the issue after Prudential PLC, a British company, said it was backing out of a deal to buy American International Assurance. The deal faltered after Prudential shareholders balked at the $35.5 billion price. AIG refused to accept less money.
Private analysts question whether AIG did the right thing in refusing to cut its asking price. Some say they wonder whether the taxpayers will ultimately be repaid.
But Geithner praised the company's decision to walk away from the Prudential offer.
"AIG is now free to pursue a bunch of other options to help maximize the return, reduce any risk of loss to the taxpayer," Geithner told reporters at the Treasury Department.
"They have got a very strong management team, a much stronger board in place, making incredibly impressive progress frankly in restructuring that entity ... putting us in a position that we can maximize the return to taxpayers as a whole," he said.
Geithner did not address how much taxpayers may ultimately recoup in the $182 billion bailout, the largest of the government rescues. The Congressional Budget Office in March estimated that the bailout will cost taxpayers $36 billion.
Others outside the government do not share Geithner's optimism.
"It's difficult to say whether this means good things or bad things for taxpayers," said Bill Bergman, a senior analyst at Morningstar in Chicago. "It is still uncertain how much taxpayers will get repaid."
AIG refused to comment on the collapsed deal other than to release a letter that Robert Benmosche, AIG president and CEO sent to company employees. It said "AIG is in the best shape it's been in two years."
Benmosche said that the company will have "several options to consider regarding AIA — more than we did in March."
Many private analysts believe that AIG will return to a previous effort to sell the unit in an initial public offering. AIG last year said it was considering an offering of AIA through the Hong Kong stock exchange, prior to negotiating a deal with Prudential
Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets, said a company typically would sell a 15 percent to 20 percent stake of a subsidiary through an IPO. Shah said it would then sell off future pieces of the company in blocks to larger investors or through secondary stock offerings over time.
On Tuesday, AIG rejected Prudential's revised offer of $30.38 billion.
Shah said it was possible that the government supported AIG's decision to balk at the reduced price because of its potential impact on future sales.
"You don't want to send a bad message" to potential future buyers that you are willing to take distressed sale prices, Shah said.
Cathy Seifert, an equity analyst at Standard & Poor's in New York, said that AIG basically has three options — try to find another big buyer for all of AIA, raise money through an IPO or break up AIA for sale to other companies.
She said the least likely option may be finding a buyer as large as Prudential.
"That would be like selling a real high-end home in a difficult real estate market. The pool of available buyers is not that large," she said.
As of March 31, AIG's outstanding government aid balance totaled $134.21 billion.
Of that package, AIG must repay the government $101.61 billion in loans. The remaining $32.61 billion is tied to the value of assets the government took over as part of the bailout. As those risky investments are repaid, that money goes directly back to the government.
The proceeds from the AIA sale would have been used to directly reduce the amount of assistance AIG received from the government. It would have cut down AIG's government aid package by more than 25 percent and would have been by far the largest repayment the insurer made since getting the initial bailout in 2008.
AIG still plans to use about $15.5 billion it expects to receive from the sale of its American Life Insurance Co. division to MetLife Inc. to repay the government loan.
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