A beleaguered business deal in Taiwan has some financial analysts wondering whether bailed-out insurance giant American International Group (AIG) even cares about paying back the $20 billion it owes taxpayers.
The company, which famously provoked outrage for paying hundreds of millions of dollars in bonuses to the same executives that brought the firm to its knees right after the government put over $170 billion into saving it, recently accepted a conspicuously low bid on a Taiwanese insurance company it is selling to pay back taxpayers for the bailout.
Further, AIG is actually advertising to investors that the bid price – the amount taxpayers would get paid back – was not its most important consideration in the deal.
The move also comes after a string of clumsy miscues on selling the company has delayed the process for two years.
“At the most basic level AIG has just been remarkably stupid in all of this. They’ve fumbled the deal repeatedly and aren’t fulfilling their fiduciary responsibility to their taxpayer-owners very well,” said Christian Whiton of D.C. International Advisory. Whiton is a veteran of international business with stints at the State Department and KPMG, where he worked on mergers and acquisitions.
Besides the $20 billion loan AIG is working to pay off, the federal government owns a 92 percent stake in the company. To pay back taxpayers, AIG worked out a strategy with the Treasury Department of selling its foreign assets.
As part of that strategy, AIG is selling its Taiwan unit, Nan Shan Life Insurance Company. The deal is complicated because Taiwan is sensitive to losing control of its economy to Beijing and the U.S. only has informal relations with Taiwan.
In October 2009, AIG accepted a bid from a consortium between China Strategic Holdings and Primus Financial Holdings for $250 million less than the price offered by a respected Taiwan-based bank, Chinatrust Financial Holdings.
The sale ran into immediate trouble with Taiwanese regulators amid concerns Primus had a Chinese sponsor.
Meanwhile, top AIG officials were telling puzzled financial analysts in New York and Taipei they’d be getting help from the State Department, who’d be pushing Taiwanese regulators for rapid approval of the deal via the American Institute in Taiwan (it’s not technically an embassy, but functions as one).
A keyed-in industry source says a high-ranking U.S. authority who was familiar with the deal told him no instructions to this effect had been sent. “The government owns AIG, so you think they’d know something that basic,” the source deadpanned.
Taiwan regulators spiked the deal in August. “Taiwanese regulators rejected AIG’s first deal with a consortium led by Hong Kong-based Primus, because of ties to mainland China and the Chinese Communist Party, lack of experience in Taiwan and a lack of insurance industry experience — major red flags that most analysts knew would kill the deal,” Whiton said.
Taiwanese regulators are now scrutinizing this deal. Ruen Chen is 80 percent owned by the Ruentex Group, which also faces concerns of Chinese influence and lack of experience in the insurance sector.
In defending its decision, Andrew Borodach, an associate general counsel for AIG, said price was not his company’s top priority.
AIG is “satisfied” with the price, but “more importantly, with the strong commitments that the buyer has made to ensure the long-term welfare of the Nan Shan business, its policyholders, employees, and agents,” Borodach said in a speech announcing the sale.
Further, Borodach boasted the structure of the deal will allow the proceeds from an initial public offering to stay in Taiwan, rather than go to U.S. taxpayers.
“In that regard, I would like to highlight an important advantage of an IPO undertaken by the Consortium as opposed to an IPO undertaken by AIG. If AIG were to lead an IPO of Nan Shan, the proceeds would have to be paid to AIG for repayment of its financial obligations to the United States government,” Borodach said.
Granted, the speech was intended for a Taiwanese audience to argue the deal will be good for that country. Further, an AIG-led IPO would likely take longer than the sale, potentially delaying repayment.
Still, it’s jarring to hear a company owned by the U.S. government boast of how its deal benefits Taiwan at the expense of U.S. taxpayers.
The Treasury Department, which is overseeing the deal, appears consumed by other priorities, insiders say, like implementing the Dodd-Frank financial reform bill. A spokesman for the agency declined to comment.
In September, Treasury announced an “accelerated” timeline for AIG paying taxpayers back for its bailout.
“The exit strategy announced today dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company,” Treasury Secretary Tim Geithner said in a written statement Sept. 30.
And in an earnings report AIG released late Thursday, the company optimistically listed the Nan Shan deal as a completed sale with proceeds helping to pay back taxpayers.
But the Nan Shan deal and a recent move by AIG to direct $2 billion from the sale of two Japanese units back into AIG rather than to taxpayers has critics crying foul.
“Ever since AIG got their enormous taxpayer bailout, they have been dragging their feet on paying back the money,” said former State Department spokesman Richard Grenell, now a spokesman for a health care company, in a Huffington Post article. “AIG’s incompetence is on prominent display in Asia — and the Obama administration and Congress seem not to care,” Grenell said.
“They’re playing fast and loose with taxpayer dollars. It’s ‘OPM’ — other people’s money,” Whiton said.
AIG declined to comment on the record for this article.