After days of looming bankruptcy rumors, AIG’s life was spared last night thanks to the Federal Reserve.
The government bailed out AIG from near failure with a two-year loan of $85 million in exchange for a nearly 80-percent stake in the company. Earlier this week, the Fed said it would not extend a loan to the insurance behemoth, but decided AIG’s failure would have too great of an impact on Wall Street. (Banks and mutual funds are major holders of AIG's debt, and could suffer if the company were to go bankrupt.)
In a statement released at 9 p.m. EST last night, the Fed said, “The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.”
AIG said in a press release, “The AIG Board has approved this transaction based on its determination that this is the best alternative for all of AIG's constituencies, including policyholders, customers, creditors, counterparties, employees and shareholders. AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis.” Further, according to Bloomberg News, Allstate’s former CEO Edward Liddy will replace AIG’s CEO of just three months, Robert Willumstad.
AIG Indie Reps Hold On
During AIG’s financial crisis, its independent b/d reps were being assured that their client assets were safe. (Securities are held at outside custodians like Pershing and Fidelity.) “Management has affirmed the strength and commitment of AIG to its broker/dealers,” says one advisor affiliated with Royal Alliance, AIG’s largest independent b/d in terms of revenue and number of reps. We’re mostly concerned about our clients and how they are dealing with the overall issue—I’m making sure they understand the facts.”
A recruiter familiar with AIG’s b/ds says he’s been receiving many calls from AIG reps asking him for advice. “I said, ‘Sit tight. Your b/d is not going anywhere any time soon.’” He says he’s not aware of any AIG b/d reps jumping ship to other firms. “Moving from one firm to another on the independent side just doesn’t happen that fast,” he says. The AIG advisors that spoke with Registered Rep. over the last week have said they don’t plan to switch b/ds.
AIG’s combined b/ds have a sales force of about 5,000 reps and generated gross revenues of nearly $1 billion in 2007. Its largest b/d, Royal Alliance, has about 1,900 reps and posted gross revenues of $408 million in 2007. AIG Financial Advisors has 1,800 reps and generated $300 million in revenue last year, while FSC Securities Corporation, with 1,273 reps, had gross revenues of $275 million in the same year, according to the recruiter.
“These are solid b/ds with veteran advisors. It’s a gem in the AIG portfolio,” he adds.