AIG shares fall on government stake deal
NEW YORK (Reuters) - American International Group Inc's shares lost a third of their value on Wednesday after the company finalized a deal that will put majority ownership in government hands.
AIG signed a "definitive" agreement for borrowings of up to $85 billion from the U.S. Federal Reserve late on Tuesday paving the way for government to take a 79.9 percent stake in the insurer, something investors had tried to thwart.
Shares, which have fallen more than 90 percent since the beginning of the year, closed down 33.8 percent to $3.31 on the New York Stock Exchange.
The stock had rallied in recent days, spurred by a large investor group's eleventh-hour attempt to raise enough funds to derail the government takeover. A representative for the investor group did not return calls for comment on Wednesday.
AIG agreed to the federal bailout to avert its collapse under mounting mortgage losses.
"AIG is essentially nationalized, in our opinion," said Friedman, Billings, Ramsey analyst Bijan Moazami in a research note.
"BEST ALTERNATIVE"
AIG Chief Executive Edward Liddy -- less than a week into the job -- said agreeing to a federal credit facility was the insurer's "best alternative."
AIG tried to address its liquidity needs through private sector financing, but failed in the current market environment, Liddy said in a statement.
AIG made it clear that the government deal carries a heavy price. It has to repay the loan either through asset sales, or new debt or share issues.
Some analysts have estimated that AIG will have to sell off large parts of its business to pay off the debt. Liddy has said he expects to provide more detail on which assets are up on the sales block in the next week to 10 days.
In addition, AIG will pay interest at a rate of 8.50 percentage points over 3-month LIBOR, putting the current rate at well above 11 percent, and an initial commitment fee equal to about $1.7 billion.
An 8.5 percent fee on any undrawn amounts will also be levied each year. The interest and the fees will be added to the balance outstanding, the company said.
Shareholders will be asked to amend the company's certificate of incorporation in order for AIG to issue preferred stock that will be convertible into common stock to be held in a trust for the U.S. Treasury.
JITTERY CLIENTS
AIG's regulated insurance subsidiaries have more than enough capital to meet current and future claims payments, according to U.S. regulators.
Still, some clients and business partners were pulling back, according to executives of insurance brokerage Marsh Inc, in a teleconference.
Travelers Cos Inc and Chubb Corp will no longer issue surety bonds in partnership with AIG, the head of Marsh's surety unit Mark Nickel said.
Both Travelers and Chubb declined to comment.
Other Marsh executives on the call said they were fielding calls from clients exploring the possibility of transferring business to other carriers when their contracts with AIG come up for renewal.
Marsh is a unit of Marsh & McLennan Cos Inc .
AIG said the company was "disappointed" that competitors were trying to take advantage of the situation, stressing that the mortgage losses that left AIG's parent company on a financial precipice had not undercut policyholders' surplus.
(Additional reporting by Jonathan Spicer, editing by Maureen Bavdek, Bernard Orr, Leslie Gevirtz)