M&A

AIG on Subprime Spin-off: “Pure Speculation”

But the hard-hit insurer's plans are likely to include some shedding of risk.
David KatzSeptember 4, 2008

The public relations director of American International Group called a report in Thursday’s Morning’s New York Post that AIG is thinking about spinning off a separate company that would hold some of its loss-laden subprime real estate securities “pure speculation based on an unknown source.”

“AIG is continuing to work on its strategic business review…and on reducing AIG’s financial risk,” Joe Norton, the property-casualty insurer’s p.r. chief told CFO.com, noting that its new chief executive officer, Robert Willumstad plans to report on the company’s progress on September 25.

Citing “one Wall Street official,” the Post reported that the company is considering selling off its book of bad-loan business by using a plan similar to the one reportedly floated by UBS AG in April. Under the plan by the Zurich, Switzerland-based investment bank, securities tied to U.S.-originated mortgages would be deposited into a subsidiary which would then be spun off. On Wednesday, however, Raoul Weil, UBS AG’s head of private banking, said the bank hasn’t offered any of its units up for sale after recently moving to separate its investment banking, private banking, and asset management businesses, according to a report in Wealth-Bulletin, a United-Kingdom-based publication.

On August 6, American International Group, which has reportedly been criticized by analysts for venturing out of its depth into sophisticated financial products, reported a $5.36 billion second-quarter net loss that included a pre-tax charge of about $5.56 billion for an unrealized market valuation loss related to the its AIG Financial Products unit’s super senior credit-default swap portfolio. “We are conducting a comprehensive review of all AIG’s businesses with the objectives of improving results, reducing AIG’s risk profile and protecting our capital base. We are examining every business, as well as the assumptions underlying how we do business in the markets where we have a presence,” Willumstad said then.

In June, Willumstad, a former president and chief operating officer of Citigroup, replaced Martin J. Sullivan as CEO of AIG.