Hope is Dashed @ AIG as Top Brass Yields to A Tangled Web of Circumstances

“I do not have any hope”

NEW YORK (Reuters) – Eli Broad, a former director and shareholder of AIG who joined other investors last year to hatch a plan to reclaim the insurer from federal ownership, said he has thrown in the towel.

American International Group Inc (AIG.N), once the world’s biggest insurer, had to be bailed out by the U.S. government last September after losses on bad mortgage bets. In exchange, taxpayers got roughly 80 percent ownership, heavily diluting the stake of shareholders.

“If you look at what has happened, I think it is too late,” said Broad, in an interview late on Monday.

“There were all these additional costs” from the federal bailout, which initially carried a heavy interest burden, said Broad. And, “a lot of good people left, and they were trying to sell units,” irking customers who did not like the uncertainty, he added.

AIG last week reported a record $61.7 billion fourth-quarter loss, and received new assistance from the U.S. government after a plan to sell assets to repay debts foundered.

The U.S. said it will keep pumping cash into AIG as needed because of the threat to trading partners from a collapse. It has already put up to $180 billion at AIG’s disposal.

AIG ran into a cash crunch after market declines and rating downgrades required it to post large amounts of collateral to counterparties of credit default swaps written by a financial products unit.

Broad said the government’s bailout of AIG had been “on the harshest of terms,” and at the worst possible time — in the wake of the collapse of Lehman Brothers.

“I think the situation if it occurred today would have been met with a different answer,” said Broad.

AIG, under the terms of its initial government rescue, had to pay 8.5 percentage points above the three-month London Interbank Offered Rate on the government loan, equal to more than 11 percent, plus other fees. Terms have been eased since.

A better approach, suggested Broad, would have been to offer government guarantees on toxic assets held by AIG, akin to what was done in the later rescue of Citigroup (C.N).

Broad and other shareholders including fund manager Shelby Davis of Davis Selected Advisors LP, money managers Dodge & Cox, Legg Mason (LM.N), and the New York state common fund, last year sought unsuccessfully to convince the government to allow private investors to reclaim ownership of AIG.

“The conversation was ‘why don’t you give us a chance to raise common equity, and if we do that you please give us the (government) equity back’,” said Broad.

Broad said he no longer was investing in insurance, and had more or less put AIG out of mind. “I don’t have any hope (for AIG), not now,” he said.

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