Susie Gharib Goes One on One with AIG CEO Edward Liddy
Monday, March 02, 2009
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SUSIE GHARIB: Back now to our top story, AIG's massive loss and another massive dose of Federal bailout money. Earlier today I sat down with the company's CEO Edward Liddy and asked him to explain why AIG's new restructuring plan will work.
EDWARD LIDDY, CHAIRMAN & CEO, AMERICAN INTERNATIONAL GROUP: A substantial improvement over what the previous plans were, a lot more equity for us, much less debt, more flexibility no matter what happens in the capital markets, a very good position for us to be in.
GHARIB: Mr. Liddy, part of this plan depends on AIG selling some of its best assets. When we talked last November, you were very optimistic that you could sell them quickly, but that hasn't happened. Why not?
LIDDY: Well, the capital markets are in complete free for all. Insurance company stocks have gotten pummeled in the last three weeks and the last two months, in the last five months. Those are the buyers of our properties. They may not have enough capital to keep their current operation afloat, so they aren't anxious to part with their tight money right now and spend it on our very good assets.
GHARIB: What's the timeline, whether they're talking about selling divisions or spinning off units?
LIDDY: I think it's a time frame, some things will happen quickly, some may take a little bit longer. So the provision whereby we give some of our assets to the Federal Reserve, we'll be able to do that in 90 to 120 days, being able to take companies public to the extent we do that instead of selling them. You know, that takes nine, 12, 15 months. It takes a while to get a company all set and ready to do that.
GHARIB: When do you think AIG's going to be making money?
LIDDY: Susie, I think it's very much a function of what happens in the market place. When asset values go down, we have to reflect that decline in value in our P&L. If things stabilize, we wouldn't have all that noise in the P&L and you would see the profitability of the basic operations. You can't see that right now because it's just overwhelmed by valuation losses coming from the decline in assets.
GHARIB: Certainly, this is a difficult time and you reported a huge loss today. Do you think though this is the last time that AIG's going to have to go to the government for money?
LIDDY: I sure hope so, but it's again very dependent upon what happens with the overall capital markets. The last time we chatted, I think I had the same answer. I don't think anybody would have expected that the Dow would have collapsed the way it has, that insurance company stocks would have collapsed the way they are. They have various asset classes would be so far under water the way they have. So we're very much tied to what's happening in the overall financial market place.
GHARIB: Before today, AIG had taken $150 billion from the government. Our viewers want to know how does AIG burn through all that money so quickly?
LIDDY: We're a financial intermediary. We have various forms of financial counter parties. Monies come into us and it goes right back out to the people to whom we owe money. So it's not spent on things per se within AIG. It's liquidity to other companies.
GHARIB: But then what's the likelihood that AIG will ever be able to pay back this money to taxpayers?
LIDDY: I think it's very high because we're going to take a couple of those really good assets and pay down the Federal Reserve with that money. We're going to do that very, very quickly. It'll take a longer period of time to satisfy the TARP money that's been invested in this, but that's permanent equity. That has a long time to run, so that can get paid back in the normal course but paying down the debt that we've borrowed from the Federal Reserve, that's in addition to protecting our policy holders, that's very important to us. It's the top of our list of things to do.
GHARIB: Everyone says that the reason why the government keeps giving money to AIG, because it's too big to fail. Please tell our viewers why AIG is too big to fail.
LIDDY: I would remind viewers of what happened when Lehman failed and simple things like mutual funds suddenly $1 invested in it wasn't worth $1. You simply can't take systemic risks. You can't have people in the United States worried about whether their variable annuities are good, whether their life insurance policies are good. We're the largest insurance company in the United States, arguably one of the largest in the world. You can't have an institution that's so connected to consumers around the United States and around the globe. You simply can't let it fail.
GHARIB: There's considerable debate about whether government should be giving money to companies in trouble whether you're talking about General Motors or whether you're talking about Citigroup or AIG. The question I keep getting asked a lot is, isn't it time to stop throwing good money after bad. What do you say to that?
LIDDY: I think it's different in different cases. In AIG's case, we are different. We have rock solid insurance subsidiaries that are underneath this thing called AIGFP in the holding company. So we have really good fundamental businesses. Our problem was a liquidity problem caused by the holding company. We can take those really good assets. We can sell them. We can distribute them. We can give them to the Federal Reserve or the Treasury and we can use that value to pay back the U.S. taxpayers. Other companies don't have that. They don't have rock solid operating companies underneath them. So I don't think it's a one-size fits all.
GHARIB: From what I'm hearing, employees are leaving the company. Business customers are nervous about doing business with AIG. Shareholders are bailing out. Can AIG survive?
LIDDY: Our company can absolutely survive. What we have is the best set of tools available to us that any company out there that's in trouble has as a result of our partnership with the Federal Reserve and the Treasury. We're confident we can pay back the dollars that we owe the Federal Reserve. We're confident that over time, we can redeem the preferred stock that we've gotten from TARP. We think we have the best possible situation. It will be complicated by what happens in the capital markets.
GHARIB: Mr. Liddy, thank you so much for your time and good luck to you.
LIDDY: Thanks.
