Cleaning up AIG’s ‘mess’ won’t be easy

John W. Schoen Senior producer • Profile • E-mail

The outrage over AIG using taxpayer dollars to pay big executive bonuses has upstaged a potentially more important question for the troubled government-owned company.

AIG CEO Edward Liddy told a congressional panel he would ask employees to return some of the bonus money, which initially was defended as essential to the “unwinding” of trillions of dollars in bad bets and the sale of large chunks of the sprawling insurance conglomerate. But it remains to be seen how much of the company can be sold off at any price — and whether some of the biggest pieces can stay afloat long enough to complete the restructuring.

As Liddy faced a grilling from the House panel on Capitol Hill, President Obama continued to field questions about the use of hundreds of millions in taxpayer bailout money for AIG bonuses, including many payouts of more than $1 million.

"Just as outrageous is the fact we find ourselves having to clean up after AIG's mess," Obama told reporters as he prepared for a trip to California.

Cleaning up that mess is turning out to be harder than the government envisioned when it moved to bail out the failing company after a marathon weekend of negotiations last October. So far, the Fed and Treasury have pumped some $170 billion into AIG to keep it afloat while Liddy and other managers try to sell off assets and use the proceeds to pay back the government.

The justification for the bailout was that AIG was simply “too big to fail.” The company owns more than 30 separate operating units and has customers in more than 130 countries; it insures more than 100,000 entities that employ more than 100 million Americans, along with more than 30 million U.S. policyholders. The fear was that a failure to make good on hundreds of billions of dollars worth of loans, insurance and other financial commitments to dozens of the world’s biggest institutions would further destabilize the already-shaky global financial system.

But AIG is also just “too big to manage,” according to Liddy, who joined AIG as CEO in September.

“The company's overall structure is too complex, too unwieldy and too opaque for its component businesses to be well-managed as one entity,” Liddy wrote in The Washington Post Wednesday.

The strategy the company is pursuing is to sell off as many pieces as possible to pay back the money advanced from the Treasury and the Fed and keep the healthy businesses afloat to generate profits for taxpayers.

There’s plenty to sell. AIG is a sprawling holding company with its fingers in dozens of businesses, from various lines of insurance — including life and property-casualty — to asset management, real estate lending, aircraft leasing, and investment products and services for both big institutional investors and consumers.

When it announced plans to sell off pieces of the company in October, the company said it would put everything up for sale except its U.S. property and casualty business, its foreign general insurance and stakes in some foreign life insurance operations. But putting a price tag on those assets has proved to be tougher than anyone imagined.

A big part of the problem is trying to estimate future profits during the worst global downturn since the Great Depression. In October, Merrill Lynch estimated total proceeds from the sale of all of AIG’s operating units could be anywhere between $98 billion and $140 billion.

The company has tried to keep some large divisions intact and sell them to single buyers. But that has narrowed the field of buyers. The U.S. life insurance and retirement services unit, for example, valued in October at between $17 billion and $26 billion, was bigger than all but three U.S. life insurers, according to Merrill Lynch. With credit hard to come by, raising the funds to finance such a large purchase also limits the potential market.

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