We saw this coming. AIG (AIG) CEO Edward Liddy confirmed to the WSJ that his company intends to renegotiate AGAIN in order to get even friendlier bailout terms.
“As soon as we make good progress on selling assets and paying down that debt, we intend to go down to Washington, D.C., and negotiate with the new Treasury secretary,” Mr. Liddy said Tuesday.
Washington initially rescued AIG in mid-September, when the insurer faced possible bankruptcy, by loaning it up to $85 billion at high interest rates. Since then, the government has twice agreed to change the deal substantially. Initially, it increased the possible loan to nearly $123 billion. Then, in mid-November, it agreed to a new package worth about $150 billion — of which up to $60 billion is a loan — that slashed AIG’s interest rate on the loan.
Mr. Liddy, who took over the company as part of the government rescue, said AIG hopes to cut the 10% dividend on the preferred shares the federal government is getting for the bailout, and to have the government reduce its 79.9% holding in AIG in order to encourage private investors to provide capital to the firm.
There were several reasons to expect this. After AIG renegotiated the first time, it became obvious that agreements with the government are signed in pencil, easily erasable and re-written. Then, after the second bailout, Liddy basically confirmed on the conference call that they hoped to secure a better deal sometime down the road. And of course there’s Hank Greenberg jumping up and down about the deal being too “punitive” and not friendly enough to AIG shareholders/employees, as if that were actually the point.
Carney wrote yesterday about the five lessons from the AIG bailout, which basically boil down to: don’t worry about anything you promised, because it can all be modified later. And once the government is on the hook for your survival, it’s too expensive to cut its losses and run. AIG is playing this game well, and since the CEO’s job is to look out for his shareholders, then in that sense it’s a job well done.
But remember, the point, ostensibly, was never to save AIG. It was saved from bankruptcy not because the government thought it deserved a lifeline, but to prevent a catastrophic shock to the financial system. We don’t know how big that shock would have been, but we do know that at this point, it’s become about what’s best for AIG itself.