TOPICS > Economy

Prudential Nabs AIG’s Asia Unit for $35 Billion

March 1, 2010 at 12:00 AM EDT
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After a liquidity crisis in 2008, insurance giant AIG is preparing for a $35 billion deal to sell its Asia unit to Britain's Prudential. Jeffrey Brown talks to Andrew Ross Sorkin of the New York Times about AIG's attempts to repay its government bailout.
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JUDY WOODRUFF: Now: the future of insurance giant AIG and the government’s massive investment in the company.

Jeffrey Brown has the story.

JEFFREY BROWN: At the height of the financial crisis in late 2008, AIG was the single largest recipient of taxpayer funds, some $180 billion, to prevent it from collapsing and possibly taking much of Wall Street with it.

Since then, the company has struggled to right itself and its image, and to pay back some of what it owes. Today, it took a major step in that effort, announcing a deal to sell its Asian life insurance business to Prudential, a British company, for $35 billion. It’s part of a bigger strategy.

And Andrew Ross Sorkin of The New York Times joins us to explain. He’s also the author of the book “Too Big to Fail.”

So, Andrew, tell us about this deal first. Why would AIG sell off a big part of itself like this?

ANDREW ROSS SORKIN, financial columnist and reporter, The New York Times: Well, this is part of sort of larger AIG narrative, which is, they have a new CEO who they have installed. And, strategically, they are trying to pare down.

You know, AIG was this enormous global company. Some argued, it was so global and so big, it was too big to manage. And, in this case, one of the steps that Benmosche has — has said that he wants to address is that issue, selling this piece and another piece. There is another business that’s up for sale, too, another insurance business that they hope to sell in the next couple of weeks.

And between those two businesses, they are hoping to actually get $50 billion in total, $25 billion of which should go back to the Federal Reserve.

JEFFREY BROWN: Now, does changing the business and the kind of businesses it in — it’s in — include getting out of the derivatives business, all the stuff that got it in trouble in the first place?

ANDREW ROSS SORKIN: Well, that’s almost a separate issue.

What — a group called F.P., or Financial Products, they are still unwinding those businesses. Some would argue that they are doing it too slowly. Some would argue they are doing it too fast. Originally, the plan was to unwind a lot of these derivatives as quickly as humanly possible.

When the new CEO came in, he actually slowed that process down, in part because he felt that they were being unwound at fire sale prices, and it wasn’t going benefit AIG, and, therefore, the taxpayers. So, that process is taking much longer.

But they’re really trying to right the ship and get into the property & casualty business in the United States, the property and casualty business internationally, the life insurance business in the U.S., and that is it.

So, all of these other businesses they are considering ancillary, they are trying to sell, and hoping to take that money and give it back to the taxpayer as quickly as possible.

JEFFREY BROWN: And — and how much of the money has come back? As we have said, some of this — some of these proceeds from this deal will go to the U.S. Treasury.

ANDREW ROSS SORKIN: Right.

Well, $25 billion in this case will go back in — out of this deal. I’m — I did some number-crunching before. And I don’t believe that — I think is the first time money has come back. I don’t think this has happened before.

So, this is a step in the right direction. Having said that, some would argue that, by selling these businesses — some would say these are the crown jewels of AIG, actually, the Asia business and some of the other businesses that they are selling — that it is going to be very hard to actually pay back the full $180 billion that has been lent out thus far.

JEFFREY BROWN: Now, the company is doing better in this last year.

ANDREW ROSS SORKIN: Right.

JEFFREY BROWN: But they did — just Friday, I think it was.

ANDREW ROSS SORKIN: Yes.

JEFFREY BROWN: They announced an $11 billion loss for the year.

ANDREW ROSS SORKIN: They did.

JEFFREY BROWN: Now, that’s a lot better than the losses from the year before, but that’s still a loss.

ANDREW ROSS SORKIN: Right. Right. Absolutely.

You know, a year ago, the loss was $61 billion with a B. So that was a huge loss. This year, it is $11 billion. A large part of that, by the way, came from the fact that they were having to put up reserves against what they thought might — that they might have to pay out in future quarters.

And that is what represented the largest part of that. So, it’s possible that they — it’s — it’s arguable that they are on the right course, but the numbers don’t show that at the moment.

JEFFREY BROWN: Now, you mentioned the new boss there, Robert Benmosche.

ANDREW ROSS SORKIN: Yes.

JEFFREY BROWN: He’s been more aggressive. He has been aggressive even on things like — controversial issues on things, like pay, there. Tell us a little bit more about him and what he is trying to do.

ANDREW ROSS SORKIN: Well, Benmosche is a much more combative, almost bigger-than-life personality. And, in fact, he has pushed back on a lot of these issues, derivatives being one, in terms of unwinding these contracts.

He said, slow down. We’re going to take our time. On the compensation issue, he said, I need to manage a business on a day-to-day basis. You can’t, you know, keep one hand of mine behind my back.

So, he has been out there and very outspoken, in fact, so outspoken that they very infrequently put him in front of politicians and regulators in Washington. They have a fellow named Harvey Golub, who is the chairman of the company, who is basically full-time now in Washington on behalf of AIG.

But, in some ways, this larger-than-life personality has helped the company, in that, internally, he has really rallied the troops and gotten a lot of people behind him.

JEFFREY BROWN: You know, and remind us, because it’s worth trying to look back at all this, how much of a role does the government still have in the company at this point?

ANDREW ROSS SORKIN: You know, a huge role.

And I think part of paying back the shareholders as — or the taxpayers in this case, who — which are the shareholders, as quickly as possible is this idea that they are hoping to be able to get the government out from over them as much as they are.

Ken Feinberg, the pay czar, has mandated curbs on pay, so I think $500,000 is the most amount of money that anybody is supposed to be getting there, but even lower. Of course, they did get bonuses this year. They were contractually supposedly entitled to those bonuses. But, going forward, you are not going to see any of that.

But, in terms of day-to-day decisions, there’s still input from Treasury and others, and they are running a lot of the stuff by Washington folks.

JEFFREY BROWN: And, in the meantime, this deal that they have announced today with Prudential, that still has to go through regulatory hurdles, right?

ANDREW ROSS SORKIN: That has an entire other regulatory hurdle, which is not just in the United States, but actually in Asia, in China, the Hong Kong regulators and the Chinese regulators. And that could create its own issue.

I don’t think you are going to see that deal get approved so quickly. By the way, there may be other bidders that may emerge, China Life, other insurance companies and sovereign wealth funds. So, this story may not be over just yet.

JEFFREY BROWN: All right, Andrew Ross Sorkin of The New York Times, thanks again.

ANDREW ROSS SORKIN: Thank you.