Today, we learn that AIG will sell its Asian life insurance arm for $35.5 billion to Prudential. This appears to be pretty great news for taxpayers. The sale moves the firm a little bit closer to actually being able to repay its massive $180 billion bailout. Or does it?
On one hand, AIG is $35.5 billion richer. It could use those proceeds to repay a sizable chunk of its bailout. That's great, right? Bloomberg thinks so:
The sum raised in the sale would exceed the total of more than 20 other deals announced by AIG since its 2008 rescue.
The agreement is "very good news for AIG and a major step toward quickly repaying U.S. taxpayers at a time when, in our view, the company appeared resigned to carrying out a time- consuming IPO," said Emmanuelle Cales, an analyst at Societe Generale SA.
I'm not as convinced. Asia is likely one of the best bets for growth in the years to come. Through this sale, AIG surrenders any potential revenue that the unit might have achieved. That income could also, of course, have been used to repay the bailout, though it would have trickled in more slowly than the unit's sale. Indeed, profits could exceed the sale price over the course of the next several years. The sale is only a good deal for taxpayers if the present value of all future revenues that the unit could have produced was less than or equal to $35.5 billion.
This move might also speak to the question of the future of AIG. If it's shedding its profitable business lines, then the firm is just winding down. And if that's the case, then its hope of repaying the bailout will be dependent on how fair the prices are it gets for the sum of its parts. Alternatively, if the firm hoped to continue to operate, then the bailout could be repaid over some number of years -- as long as it takes.
I'm not sure which approach is a more likely means of taxpayers getting their money back. If the damage to AIG's brand is too great for the firm to continue, then it might as well close up shop and sell off units as quickly and effectively as possible. I just worry that, even if it successfully sells every division, it wouldn't get near the $180 billion amount it owes.
But if the firm could continue to function well for years to come and rebuild its business, then I think that would be a much more likely route to getting taxpayers their money back in full. That's why, despite the seeming success of the Asian division sale, I worry it indicates that AIG will just rely on selling itself piece-by-piece for the best prices it can get. This alternative could lead to a pretty big taxpayer loss on the bailout.