Timeline of a Recovery: American International Group
With last week's five-year anniversary of both the fall of Lehman Brothers and the near-bankruptcy of American International Group behind us, it may be time for investors to shed their remaining doubts about the return of one of the world's finest insurance firms. But to do that, some context about the company's return to power may be needed. Last week I took investors back down memory lane, with a timeline of the insurance giant's huge stumble, so let's now take a look at how AIG has gotten back on its feet.
Sept. 16 -- aka. where we left off...
The Federal Reserve, with the support of the U.S. Treasury Department, authorizes the Federal Reserve Bank of New York to lend up to $85 billion to AIG through a revolving credit facility in return for a 79.9% equity interest.
CEO Robert Willumstad is replaced by former Allstate CEO Edward Liddy.
AIG and the Fed reach an expanded agreement for an additional $37.8 billion as the company struggles to meet the demands of customers exiting its securities-lending program.
AIG and the Fed announce a restructuring of its agreement:
- Through TARP, the Treasury will invest $40 billion in newly issued preferred shares of AIG.
- The New York Fed amended its revolving credit facility, reducing the commitment to $60 billion, giving AIG an additional three years until its payoff date, and reducing the interest rate by 5.5%.
- The FRBNY agreed to create two entities, Maiden Lane II and III, to be funded by both itself and AIG, to purchase residential mortgage-backed securities and collateralized debt obligations either owned or backed by AIG's credit default swaps portfolio. The purchase of these instruments effectively terminated the CDSes and would stop further losses.
December (various dates)
- AIG announces the sale of residential mortgage-backed securities and CDOs to the FRBNY Maiden Lane entities.
- AIG also announces that it has terminated its securities-lending program.
About 400 workers at financial products (the division responsible for the company's near-bankruptcy) are offered $450 million in retention pay. This would later come back to bite CEO Liddy.
AIG reports a record fourth-quarter loss of more than $60 billion and announces another restructuring of its bailout, which includes an additional Treasury injection of as much as $29.8 billion, raising the bailout total to $182.3 billion.
The further restructure includes a reduction in the Federal Reserve's revolving credit facility from $60 billion to $25 billion in exchange for preferred stock interests in American Life Insurance (ALICO) and American International Assurance (AIA), two life insurance holding subsidiaries of AIG.
Under pressure from lawmakers, AIG discloses counterparties to credit default swaps, guaranteed investment agreements, and securities lending transactions. The disclosure shows that Wall Street firms received more than $90 billion in payments from the firm after its rescue.
|Deutsche Bank||$11.8 billion|
|Goldman Sachs||$12.9 billion|
|Bank of America*||$12 billion|
During a hearing, CEO Liddy tells Congress he asked employees in the derivatives unit who were getting retention bonuses of more than $100,000 to return at least half.
Liddy says he will resign.
AIG posts its first profit in seven quarters.
Robert Benmosche becomes AIG's fifth CEO since 2005. The former CEO of MetLife will ultimately receive most of the credit for turning the company around and preventing an unnecessary fire sale of its assets.
AIG reaches a deal to sell AIA to Prudential for $35.5 billion; the sale falls apart in June.
AIG reaches a deal to sell ALICO to MetLife for $15.5 billion; the deal closes later in the year.
AIG announces the sale of subsidiary American General Finance.
AIG announces the reduction of principal balance on New York Fed revolving credit facility.
AIG announces that it has worked with the Treasury, FRBNY, and others to simplify the current governmental investment and accelerate its payment of obligations to taxpayers. It starts the process for the Treasury's exit, which includes the conversion of the Treasury's $49.1 billion preferred stake into common shares for sale to investors.
AIG sells a majority stake in AIA in an initial public offering in Hong Kong, selling more than 8 billion shares and raising about $20.5 billion.
So far, AIG has raised almost $37 billion to repay its obligations through the sale of ALICO and its IPO of AIA.
AIG announces a deal to sell its Taiwanese insurance unit Nan Shan.
AIG repays its Fed credit line, and the recapitalization deal announced in September closes, converting Treasury's stake for common stock, giving the U.S. a 92% holding.
The New York Fed says it will auction bonds from the Maiden Lane II fund.
The Treasury completes its first sale of AIG stock, reducing its stake in the company to 77%. The shares were priced at $29 and raised $8.7 billion.
The company says it will hold on to United Guaranty, its mortgage insurance unit whose fate had been undecided. This proves to be a big win for the company down the line.
Shares fall to a 17-month low, having lost half their value over the course of the year on uncertainty about the company's future.
AIG begins to seek damages from some of its counterparties, which it believes may have led to its near-collapse. First on the list is a $10 billion suit against Bank of America alleging mortgage fraud. This suit is still in the works after various setbacks.
ILFC, AIG's aircraft leasing business, files for an initial public offering. Because of poor market conditions, the IPO is put on hold.
With the recapitalization of its bailout (announced in September 2011), AIG's obligations to the FRBNY are fully repaid, and the Treasury's shares are converted into common equity.
After it determines that it has returned to "sustainable operating profits," AIG recognizes a $17.7 billion tax benefit. This would later be criticized by some members of Congress as a "stealth bailout."
FRBNY announces the sale of all remaining assets in Maiden Lane II, one of the two vehicles it set up to help rescue the company.
AIG announces that it will rebrand some divisions that had dropped the AIG name during the crisis.
The FRBNY announces that its part in the bailout has ended as it sells the last mortgage debt it assumed in the Maiden Lane III vehicle, created to cancel credit default swaps.
In its fifth offering to investors, the Treasury cuts its stake in AIG to 16 percent. Shares sold for $32.50 apiece, netting $20.7 billion.
AIG says it plans to shift its focus from stock buybacks to debt management and adds it would like to pay a dividend in 2013 if possible. AIG has made progress on both plans in 2013.
AIG agrees to sell a majority stake in a plane-lease unit to a group of Chinese investors for $4.23 billion. The deal is still incomplete, with AIG and ILFC management preparing for an IPO if the deal falls through.
The Treasury sells its remaining 234.2 million shares at $32.50 in its last offering, raising $7.6 billion. Overall, through sales of shares and AIG's obligations, the bailout nets the insurer a profit of $22.7 billion.
The rescue of AIG was complicated, and it had implications for the financial sector that are beyond the scope of this article, but the company has repaid its debts and is back in ship-shape. For investors looking to see how AIG has done since the last Treasury shares were sold, check out my article, 5 Great Things AIG's Done So Far in 2013.
More financial sector success stories
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The article Timeline of a Recovery: American International Group originally appeared on Fool.com.Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends American International Group, Bank of America, and Goldman Sachs. The Motley Fool owns shares of American International Group and Bank of America and has the following options: long January 2014 $25 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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