Gediminas Jasionis

American International Group, Inc. (NYSE: AIG) continues sell off of assets

by Gediminas Jasionis April 16, 2009
aig.JPGThe battered insurance company, American International Group, Inc. (NYSE: AIG), announced today they have completed the sale of their subsidiary AIG Private Bank Ltd. The buyer was Aabar Investment PJSC, an investment company from Abu Dhabi.

The entire transaction is valued $253 million. Also, upon the purchase Aabar assumed $55 million of intra-company loans that are outstanding to AIG Private Bank.

"We are pleased to complete this transaction, which is part of our plan for the orderly sale of certain assets to repay the loans from the U. S. government," said Edward Liddy, AIG's president and chief executive officer. "This is the fourth transaction we have closed in the past three weeks and it is one of 10 asset sale agreements we have reached in the past few months, despite a very challenging environment. Several other transactions are under discussion, and we continue to evaluate how best to assure the continued strength and success of all of AIG's businesses."

While this transaction is an opportunity to generate cash, it is also cutting off parts of the company. So where is the company headed with all these sales? They have some $180 billion to be paid back to the government. But at the price levels they are selling off their business assets, it seems that debt is hardly going to be covered.

With the company downsizing its infrastructure, future possible earnings may also be cut accordingly. So even if a half of the debt is covered by the property sales, the remaining business is likely to be so weak that it will be stuck in debt for an extended period.

This makes investors wonder if there is actually a chance of AIG stock recovering from its current price level. If the company has no real chances of covering its debt, the stock price can only be expected to climb at a slow speed as the market recovers from the crisis. 

Reference:

http://www.aig.com

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