AIG: Please, sir, can I have some more?
Posted
Mar 02 2009, 05:14 AM
by
Bernhard Warner and Matthew Yeomans
Rating:
This post comes from partner site The Big Money.
Six months after first stepping in to save American International Group (AIG), the U.S. government has once again agreed to bail it out. The federal government will offer an additional $30 billion in taxpayer money to AIG just hours before the "battled insurer" is expected to announce a $62 billion loss, the biggest quarterly loss in history.
Given that the government already owns nearly 80% of AIG's holding company, it's not surprising that this latest plan will expose U.S. taxpayers to more financial risk. Yesterday's agreement raises the prospect of breaking up the 90-year-old giant into various units and relaxes the stringent loan terms set in September by "wiping out interest in hopes of preserving AIG's value over a longer period," writes the Wall Street Journal.
Simply put, with credit-rating agencies on the brink of downgrading AIG's shares, the Treasury felt it had no choice but to prop up AIG "because its business and trading activities are so intricately woven through the world’s banking system," writes the New York Times. Now that we the people have a majority stake in AIG, perhaps it might reconsider the lawsuit it filed Friday against the federal government over a disputed $306 million in taxes, interest, and penalties?
From the department of hindsight, American Express President Alfred Kelly tells the WSJ: "If we had known this was coming, we would have ratcheted back some of our investment and put tighter guardrails on our credit decisions." He's referring of course to the recession that has left Amex staggering from late payments and defaults by customers.
As a result, Amex is "now going back to its roots as a charge-card issuer to well-heeled Americans who can pay off their balance every month. It also is getting tough on many of the same customers it courted when times were good," writes the WSJ.
In another consumer credit retrenchment, HSBC's U.S. consumer arm, HSBC Finance Corp., plans to shut its 800 branches and cease offering personal loans, reports the WSJ. The move could signal that HSBC believes the downturn in the U.S. has a long way to go, it adds. And just as the global bank seeks to raise another $17 billion in a shareholder-rights issue, CEO Michael Geoghegan is expected to waive his multimillion-dollar bonus this year after the U.K. government demonstrated fresh resolve in reclaiming at least some of the $1 million annual pension being paid to disgraced RSB boss Sir Fred Goodwin, the Guardian reports.
Staying in Europe, the economic crisis has "unleashed forces" threatening to split the European Union into rival camps, the NYT reports. The normal veneer of pan-European solidarity is being undermined by protectionist pressures in some member countries and by the stress of maintaining a common currency when Eastern Europe is faring worse than the West.
Wealthier states like Germany are "faced with the unpalatable prospect of having to put German money at risk to bail out less responsible partners that do not adhere to European fiscal rules," it writes. It's probably just as well, then, that Ukraine isn't part of the EU. Once considered a "worldwide symbol of an emerging, free-market democracy that had cast off authoritarianism," Ukraine is in danger of complete economic meltdown that could reverberate throughout Eastern Europe, reports the NYT. The collapse of this country with 46 million citizens could see neighboring Russia move more aggressively to intervene in Ukraine's affairs.
How much is Facebook worth? That old chestnut is once again at the center of tech talk following confirmation that the social network was in negotiations that have now fallen through to buy micro-blogging darling Twitter. Facebook director and investor Peter Thiel tells BusinessWeek that the parties disagreed over price and structure even as they seriously considered a deal late last year.
Facebook valued Twitter at $500 million, but the "deal would have to be done with Facebook stock. And then you have to figure out how much the stock is worth," Thiel said. With no open-market valuation, given that Facebook is privately held, it is impossible to judge the true value of the company, even if its owners reckon Facebook is worth between $8 billion and $9 billion.
Twitter's board knew Facebook "was letting employees sell stock on the secondary market at company valuations ranging from $2 to $4 billion" and, so, balked at a deal. Ultimately, "Twitter management also believed and continues to believe that Twitter has tremendous momentum and that its full potential isn't close to being realized," writes BusinessWeek.
Finally, fed up with toxic loans? Then why not consider Sharia banking? That's the suggestion of Indonesian President Susilo Bambang Yudhoyono, who has "called on Islamic banks to take a leadership role in the global economy, amid the financial crisis," writes the BBC. Under Islamic law, loans based on interest are outlawed, as they are seen as a form of gambling. "Transactions must be backed by real assets, and because risk is shared between the bank and the depositor, there is added incentive for the institutions to ensure deals are sound," it writes.
This post was written by Matthew Yeomans of The Big Money.
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