In a major revelation, American International Group Inc. (AIG) has disclosed its target of repaying the Troubled Asset Relief Program (TARP) loan back to the U.S. government within the next two years. For this, the company expects to raise funds through earnings from business operations and also by disposing of unnecessary businesses in the near term.
Taking the repayment bull by its horns, AIG’s CEO Robert Benmosche recently charted out his plan of repaying the $182 billion that it received as aid from the U.S. government’s Federal Reserve and the Treasury. While the CEO believes that if AIG gets more time for repayment, it will be in a better position to pay in full without sacrificing its major assets.
However, taking more time will also mean dishing out more interests on the loans taken. For one example, AIG has to pay 3% plus 3-month Libor rate to the government in interest on one $25 billion 5-year loan.
Other concerns are the improvement in overall aggressive managerial efficiency, regenerating confidence among the company’s dispirited staff and withstanding consistent pressure from the U.S. government to sell assets quickly to repay debts. These issues have to be dealt with head on and immediately to help the company from collapsing.
The U.S. government already holds a significant share in AIG. Against one loan of $26 billion, the government held preferred interest in entities holding all the common stock of American Life Insurance Co. and American International Assurance Co, two life insurance holding companies that are subsidiaries of AIG.
We believe that while most of the major institutions in the financial market like Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), Citigroup Inc. (C) and Goldman Sachs Inc. (GS) have repaid or are on the verge of repaying the TARP loan, AIG has to take vigorous and strategic steps to rid the company of its TARP baggage and the ensuing government pressure. However, given the huge amount of the loan, taking a longer time period compared to its peers is inevitable.
Read the full analyst report on “AIG”
Read the full analyst report on “BAC”
Read the full analyst report on “WFC”
Read the full analyst report on “C”
Read the full analyst report on “GS”
Zacks Investment Research
