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AIG could be broken up

The insurer reportedly could be split into at least three government-controlled units in an effort to save the business.

February 27, 2009|Associated Press

CHARLOTTE, N.C. — Beleaguered insurer American International Group Inc. could be split into at least three separate government-controlled divisions in an effort to save the business, according to a report Thursday by the Financial Times.

This week, reports surfaced that New York-based AIG might be asking for its fourth loan from the federal government just days before it is expected to report a fourth-quarter loss.

Once one of the world's largest insurers, AIG has already received $150 billion in loans from the government. In return the government has taken an 80% stake in the insurer.

Under the new proposed plan, the government would swap its 80% stake for even bigger pieces of three units that would be split off from the company, according to the FT report, citing anonymous people.

Those units would be AIG's Asian operations, its international life insurance business and its U.S. personal lines business. A fourth unit made up of AIG's other businesses and troubled assets could be created as well or sold off in pieces, according to the FT report.

AIG's other major operations include its U.S. life insurance business, its international property and casualty insurance unit and its aircraft leasing business.

In return for the breakup, the government would relax the terms of, or cancel a portion of, the $60-billion loan that was at the center of AIG's $150-billion rescue package, the newspaper said.

Details of the plan could come Monday, when AIG is expected to report a $60-billion fourth-quarter loss, the FT said.

AIG spokeswoman Christina Pretto declined to provide specifics about losses or a potential breakup of the company but did acknowledge that the insurer was reviewing alternatives with the government ahead of releasing its fourth-quarter results.

"We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges," Pretto said Thursday. "We will provide a complete update when we report financial results in the near future."

In November, the U.S. government restructured previous loans provided to AIG, giving the company about $150 billion in total as part of a rescue package to help the insurer remain in business amid the worsening credit crisis. That package replaced earlier loans, including its first $85-billion loan in September, after it became apparent that the insurer needed more funds.

Problems at AIG did not come from its traditional insurance operations but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.

AIG has been in the process of selling assets in an effort to raise more cash to help cover the government loans. As of Feb. 13, AIG had already sold interests in nine businesses.

Shares of AIG rose 6 cents, or 13%, to close at 52 cents.

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