AIG’s Benmosche Forgets To Under-promise and Over-deliver

Flamboyant and loquacious AIG (AIG) CEO Robert Benmosche forgot the old business rule that it is best to under-promise and over-deliver. He told Reuters that he believes his company will pay back taxpayers before 2013 when its Fed credit line expires.

Benmosche points to the sale of AIA division to Prudential UK and the sales of AIG’s American Life Insurance company to MetLife (MET) to help make his point. The two transactions will bring $50 billion to a company that took in $182 billion from the federal government.

A company that is in the process of partially liquidating itself usually finds that its best assets are sold first and what remains is less attractive to buyers. A discerning financial marketplace has not been aggressively bidding for what is left of AIG. The insurance company’s ILFC aircraft leasing unit is the largest in the world. But, it is burdened by a poor balance sheet of its own, and may be an asset that never gets a buyer at all.

Benmosche will find that the going gets tougher from here. It is hard to imagine what company would buy most of AIG’s most toxic assets unless is at a huge discount. AIG’s big general insurance unit lost $1.8 billion in the fourth quarter.

AIG’ market cap is only $5 billion. That says a great deal about what investors think the company is worth when factoring in its problem assets. Some analysts would say that the figure is not an accurate reflection of AIG’s value if it continues liquidation, but investors are not naive. They can do the math. The sale of AIG”s two large units to Prudential US and Met Life are factored in by the market. What is left of the insurance company is very little, at least from a financial standpoint.

Douglas A. McIntyre