As part of its intention to focus on expanding the property and casualty unit, American International Group Inc. (AIG) has shelved its effort to spin off its property-casualty business Chartis.
AIG had planned earlier to sell a stake of up to 20% in Chartis through either an IPO or transactions with private investors to raise cash for repaying a part of its debt to the U.S. government. AIG still has not repaid a single penny of about $182.5 billion in government bailout money it received during the height of financial crisis last year.
Robert Benmosche, the fourth person to take over AIG as CEO in Jun 2008, is planning a wide restructuring in the organization instead of divesting assets and units to pay back the government money. As part of the restructuring effort, Benmosche prefers to build over time on Chartis which he sees as core business.
With the restructuring plan, Benmosche has also stalled the planned sale of two Japanese life insurers and a U.S. investment advisory unit since he joined the company.
U.S. pay czar Kenneth Feinberg said on Monday that he has revised his decision on pay limitations for a top executive of AIG as the executive has decided to remain with the company.
Recently, in a major revelation, the chief of AIG disclosed its intention of repaying the Troubled Asset Relief Program (TARP) loan within the next two years. For this, the company expects to use earnings from business operations and by disposing unnecessary businesses in the near term.
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 and businesses. Also, over time the restructuring effort will significantly contribute to the earnings. However, taking more time will also mean paying out more interest on the loans taken. For instance, among others, AIG has to pay 3% plus 3-month Libor rate to the government in interest on one $25 billion 5-year loan.
Moreover, other concerns that need attention are the improvement in overall aggressive managerial efficiency, regenerating confidence among the 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 immediately to prevent the company from collapsing. So retaining the employee is critical to the long-term performance and stability of AIG.
However, given the huge amount of the loan, AIG has to take vigorous and strategic decisions to free itself from TARP and the government pressure in its wake. On Tuesday, on the Chartis news, AIG shares shot up by about 10.7% on the New York Stock Exchange, on heavy volume, closing at $31.05.
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