Good News, Bad News in AIG Sale

Taxpayers might want to wait before rejoicing

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Mere days after AIG's staggeringly poor fourth quarter numbers dropped, taxpayers were cheered by news of a profitable deal: Prudential will buy AIG's super-profitable Asian life-insurance business for $35.5 billion. But will this windfall translate into repayments on the $182.3 billion loaned by TARP? That's just not clear.

  • 'Finally, a Pay Day for U.S. Taxpayers' 24/7 Wall St.'s Douglas McIntyre hails the deal, arguing that "taxpayers could ask why AIG has not been more dutiful in selling some of its other assets."
  • Not So Much: 3 Reasons Not to Get Optimistic "Yesterday's AIG sale won't even go to TARP," writes Nomi Prins at The Daily Beast. "Study the money trail, and it's clear that repayments come through a revolving bailout door that allows firms to pay back one federal perk (TARP) with another one (say, a cheap Fed loan...)." When AIG says it's paying back "taxpayers," it means the Fed. Second, says Prins, there's plenty of time for the deal to "sour." Finally, even if the deal goes through, $70 billion in taxpayer money remains to be repaid, with AIG still losing money through business. The company may need to spend on itself before it repays loans.
  • Actually, Some of This Money May Go to Goldman Yes, Goldman Sachs--the populist bête noire. Michael Corkery of The Wall Street Journal points out that they were advising AIG through this deal (The New York Times lists other advisers), and that they usually extract a heavy fee for such a service. Given Goldman's new "attentiveness... to optics," though, he acknowledges it's possible they'll lower the bill.
  • Short-Term Gain, Long-Term Loss?  The Atlantic's Daniel Indiviglio sees the attraction of the extra $35.5 billion. But if AIG is selling off its profitable units, it suggests the company is essentially closing down. That's not necessarily a bad move: "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."
  • Then Again, Deal Could Fall Through Business Insider's Gregory White observes that the deal, already expensive for buyer Prudential, could get even more so if the pound continues to fall.
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