With AIG, US taxpayers in for long wait

AIG's talks to sell its foreign life insurance business offer hope that US taxpayers might recoup their investment in the bailed-out insurer, but it is far from getting off federal life support.                                            

American International Group Inc, which is trying to pay back the government after being propped up by a $182.3 billion aid package, is in talks to sell its American Life Insurance Co (Alico) unit to MetLife Inc for between $14 billion and $15 billion.                                             

The Federal Reserve Bank of New York would get $9 billion of the proceeds because of its preferred interest in the business, leaving AIG with several billion dollars that it could use to pay some of what it owes the government.                                            

Selling Alico would also signal a pickup in the market for insurance sector deals, which bodes well for other AIG asset divestitures, like the planned initial public offering for American International Assurance (AIA), analysts said.                                            

AIA, its Asian life insurance unit, might go public in the first half of 2010 in Hong Kong. That offering could fetch more than $10 billion. The Fed has a preferred interest worth $16 billion in a special vehicle that holds AIA.                                            

But AIG, as of December 1, still owed US taxpayers $17.2 billion under a Fed credit facility and $44.8 billion in equity injections from the US Treasury that it must pay back.

The US government also owns nearly 80% of AIG.                                            

That means even after selling off crown jewels like Alico and AIA, AIG will still be tens of billions of dollars away from paying off Uncle Sam.                                            

"It's a good chunk, but they've got a long way to go," said Morningstar senior analyst Bill Bergman.                                            

AIG declined to comment.                                                                                    

Sale efforts                                       
Under Robert Benmosche, who took over as AIG CEO in August, the insurer looks less likely to sell other assets that could yield large amounts of cash like Alico and AIA.                                            

Benmosche, who gets $4 million of his $7 million annual salary in AIG common stock, has changed AIG's approach to repaying taxpayers.                                            

Under the terms of his contract, Benmosche, a former chief executive and shareholder in MetLife, cannot be involved in AIG's discussions to sell Alico to his former employer.                                            

Benmosche has slowed divestments and taken some off the auction block, moving AIG away from wind-down mode to looking at preserving and even growing its core franchise.                                            

He halted a plan to take property and casualty unit Chartis public, a source told Reuters in December. Last week, Chartis said it will invest about 13.5 billion yen ($147 million) to take majority control of Japan's Fuji Fire and Marine Insurance.                                            

Benmosche's approach finds some support, particularly from former AIG chief executive Maurice "Hank" Greenberg, who wants the government to cut its stake below 20% and has argued that AIG should not sell Alico and AIA.                                            

AIG has about a dozen assets for sale, including aircraft leasing business International Lease Finance Corp (ILFC).                                            

The insurer recently rejected a bid by ILFC Chief Executive Steven Udvar-Hazy to buy about $4 billion worth of aircraft from the leasing firm, according to The Wall Street Journal.                                            

Since its bailout in September 2008, AIG has announced deals to sell more than two dozen businesses for more than $11.9 billion.                                            

The government could make money from its other investments involved in the bailout of AIG. The Fed has made billions of dollars in paper profits from its effort to help AIG deal with credit insurance contracts, according to the Financial Times.                                            

AIG likely cannot repay the taxpayer anytime soon, but these asset sales could help it pay down the money outstanding under its credit facility from the Fed. That would be a big step, said Clark Troy, a senior analyst at the Aite Group.                                            

"The timeframe is not 2012," Troy said. "But I do think it is likely that AIG can work its way through this, absent some significant market shock."