1. Potential Liquidation
there's concern AIG will have to sell ALL of its units to satisfy the govt loan
2. Punitive Loan Terms
AIG will pay at least 8.5 percent annual interest ON THE ENTIRE Federal Reserve credit line AND a $1.7 billion fee, NO MATTER HOW MUCH IS DRAWN DOWN.
"The interest rate they're paying is hugely punitive, it's almost distressed-loan terms"
3. No Private Rescue
The agreement (signed yesterday)``effectively PUTS TO REST the question as to whether other private alternatives would be available to common equity holders,'' Nigel Dally, Morgan Stanley analyst, said today in a note.
4. No Warrants
The company yesterday said the Treasury will instead get preferred shares with voting rights, guaranteeing the U.S. will control the outcome of any shareholder vote.
Where's the good news that propels people here to continue buying this stock?
Let's say you are Paulson and you have to deal with one fire after another. Someone comes to you ans says, I can fix the AIG problem and let you focus on something else. What would you say: I am not interested, this is a done deal...
The AIG fire is over and it easy for the Feds...
1) Loan 85 Bill over 2 years
2) Collect outrageous interest rates and fees
3) Mandate sale of lucrative units
4) Get 79.9% ownership
5) Protect interest of TAXPAYERS NOT COMMON STOCK HOLDERS
6) Once loan is close to being repaid, convert preferred to common shares
7) Tell Congress you got the best terms imaginable and you punished the Wall Street Villians
Historians will record Paulson as a genius and AIG Management as inept!!!
That makes no sense.
If the terms of the $85 Billion loan are so severe that AIG must liquidate everything and file BK.....
Then why bail AIG out at all?
Furthermore, why risk the $85 Billion?
AIG is suffering from no LIQUIDITY right now....that's what the bailout addresses. The feds know AIG has the assets to cover the loan + interest + penalties AND not only stay afloat, but prosper.
Think about it....if AIG goes BK, feds are out $85 billion.
that's a good question.
answer: had AIG declared BK last week, the likelihood of global systemic failure would have been enormous. the world's economies would likely have collapsed instantaneously. not only is AIG a huge component in economies around the world, but its failure would have triggered an unprecedented panic reaction by the masses. asians were already "making a run" on the company with an untold number of the 3.7 million china customers canceling policies.
with the loan, AIG can sell assets in a controlled manner, hopefully avoiding a fire sale and the accompanying pandemonium.
AIG filing BK last week would have been devastating in ways that we would never imagine. one analyst estimated that the dow would have dropped 1000 points, and i think that's a low estimate.
IMO it's about the same as a BK, but it's a controlled exit instead of people jumping out the windows.
I know this is old news, but they have TWO YEARS to repay the 85B loan as is noted on the AIG webpage press release:
AIG Chairman and Chief Executive Officer Edward M. Liddy said, "AIG made an exhaustive effort to address its liquidity needs through private sector financing, but was unable to do so in the current environment. This facility was the company's best alternative. We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company. Importantly, AIG's insurance subsidiaries remain strong, liquid and well-capitalized."
Actual Press Release:
AIG SIGNS DEFINITIVE AGREEMENT WITH FEDERAL RESERVE BANK OF NEW YORK FOR $85 BILLION CREDIT FACILITY
Why would Mr. Liddy say the above if he thought it would not be a 'profitable company' in the future? We will still benefit if the share price rises and if they still pay a dividend later on and even if they don't pay the dividend.
These days you can't always trust the CEO's words, but you'd think this statement would have been illegal if the company was going to be taken over by the government and would cease to exist.
Am I missing something here?
I'm looking at it this way. If the govt does own 80% or 4/5 of what the stock is worth. A stock price for us of around 6 is equal to the old company at 30. With an 85 billion dollar infusion the co has got to be worth 30 bucks a share in the old value - which will mean 6 for us.
Here are a few excerpts form the Credit Suisse Report today available on E-Trade
They have a best case $3 value for the common shares...
Deal with the Fed Finalized
Last night AIG announced that it had signed a definitive agreement with the
Fed on the previously announced $85b liquidity facility. There had been
speculation that AIG could seek a private sector solution and thus avoid the
government dilution, but the company indicated that this deal with the Fed
represents its best option given the market turmoil.
In addition to a 79.9% equity stake and interest rate of LIBOR plus 8.5
percent on the drawn amount of the facility, two new items were released in
the statement last night: 1. AIG will pay 8.5% on the undrawn part of the
facility, and 2. the original Fed language said the loan was to be repaid from
sales of assets, the new statement also includes debt and equity issuance
as potential sources of funds to repay government loan.
We would expect a pullback in the stock following recent strength as we
think it was bid up in the hopes of avoiding dilution of the government's
equity stake. With that prospect now off the table, our sum of the parts
analysis suggests that our $3 price target (after considering the net effect of
repaying the government loan and net of AIG corporate debt) is a fairly
optimistic assessment of the value of AIG equity.
Additionally, the added costs related to the undrawn part of the facility will be
material (extra $4.7 billion of annualized interest expense for current $55b of
undrawn line) and it’s unclear whether AIG would be able to access the debt
or equity markets prior to a large amount of asset sales
The airline segment of AIG's business can bring in $55 Billion alone. Real estate in NYC as well as Tokyo can bring in an additional $18 Billion as well. Nothing personal, but you aren't remotely close with understanding the depth of AIG's assets. GLTA.
HA HA HA HA HA HA... $55B
now i'm LMAO
try $8B - $14B for the International Lease Finance business:
"Some analysts said that the government might push to keep the unit because of the much-needed cash flow and the value of the aircraft assets, which can be used as collateral to borrow more money. But selling the unit is also compelling because it could fetch $8 billion to $14 billion, according to various estimates by analysts."
Your analysis is duly noted except that you fail to recognize the other side of the balance sheet.
If we only had to focus on assets then AIG would not be an issue of conversation.
They clearly have numerous assets of great value.
But, they have huge liabilities from the financial derivatives side of the business. Just to help with some knowledge on this side of the ledger, they have been insuring credit swaps since 1999 or so using their impeccable credit rating.
Credit swaps insure mortgage portfolios which banks use to hedge their risk. Guess who now is now biting the bullet? AIG.....these mortgage portfolios continue to drop in value.
Think of it like this in a hypothetical situation, they chose to focus their market expansion for Property and Casualty insurance 8 years before Hurricane Katrina hit in New Orleans building a huge book of business. Granted, this is only a case study scenario.
However, they now face the same tidal wave of claims for insuring the credit swaps which are declining almost every week as New Orleans insurers faced after Katrina.
So, who knows what their liabilities will amount to in the coming years? It is a painful situation for AIG
so are you our f@@@ing savior telling us not to buy it is a risk if you have no interst in the stock then why are you here?????? don't you think people know there is a risk? but the upside is too great to not have at least a small play and if you lose then you lose if you can't take the risk then don't buy
as other poster said - losses are not even quantified yet.
besides, there will be no dividend going forward b/c there are no profits going forward.
AIG is losing billions each quarter.
AIG will be selling some/most/all of their assets that are currently generating revenue/profits in order to pay the government back. after these assets are sold, they no longer generate profits for AIG
Not! Look at the big picture.
The toxic book of derivative business and credit swaps which AIG insured is their problem.
They have liabilities that cannot be quantified.
Housing prices just dropped 9.5% in August.
Guess who insures the credit swaps on these mortgages??? AIG
Housing will continue to drop which will only drive up writeoffs for AIG.
Uncle Sam will purchase these assets (hopefully) at a huge discount which will cause more writeoffs.
The mandate for AIG is sell, sell, sell, and yes the common shareholders will get the hope of a better day in 3-5 years but with massive distribution.
Think of this way, would anyone pay retail prices for stuff that is sitting in the Fred Sanford Flea Marktet???
The company yesterday said the Treasury will instead get preferred shares with voting rights, guaranteeing the U.S. will control the outcome of any shareholder vote. AIG said it intends for the preferred shares to be converted into common stock and that a shareholder meeting will be held to approve it.
AIG is worth $3 to $5 a share, Dally said, based on an analysis of the company's units. He rates the firm ``equal- weight.''
most people still do not get what has happened. I can't believe they still want to bet on some miracle rescue is going to happen. The facts are now very clear what has happened and what is going to happen and it is not positive for common stock shareholders.
Time to move this one is over.