Former CEO Greenberg Offers Alternative Plan for AIG

Former CEO of American International Group Inc. (AIG) Maurice "Hank" Greenberg has proposed changes to the federal government's $85 billion bailout of the firm, saying that the current terms would result in the liquidation of the insurance giant.  
  
Last month, AIG's board entered an agreement with the Federal Reserve Bank of New York to obtain the bailout via a two-year credit facility that requires AIG to pay a 2% one-time commitment fee, 8.5% interest on undrawn capital and a floating rate that is currently 14% on drawn capital. The U.S. Treasury received a 79.9% stake in AIG from the deal.  
  
The interest charges currently add up to $1 billion monthly.  
  
The two-year time frame of the credit facility is designed to allow AIG to proceed deliberately. However, with credit markets seized up, time isn't on the insurance company's side. Further complicating matters, insurance companies are getting hammered on Wall Street, meaning AIG may have to sell more assets than it expected to repay the loan.  
  
Mr. Greenberg would change the loan to non-voting preferred stock with a dividend of 5% to 6% and a 10-year right of redemption at a 10% premium. He also said that the ability sell some "toxic" securities to the new $700 billion Wall Street bailout fund and changes to mark-to-market accounting would be a lifeline that "in all likelihood" could allow AIG to redeem the preferred stock in less than 10 years.  
  
"At a minimum, AIG should be afforded the same borrowing terms as other companies," Mr. Greenberg said in a letter filed with the Securities and Exchange Commission. "Since the time the credit facility was entered into, the Federal Reserve has stepped up direct lending to scores of financial institutions and, for the first time last week, to nonfinancial institutions. They are able to borrow on terms far less onerous than those imposed on AIG."   
  
Mr. Greenberg, who was ousted from the company's helm in 2005 amid an accounting scandal, believes the current package is counterproductive because it requires AIG to pay interest on money it doesn't borrow, thereby encouraging it to draw down the full amount of the loan.  
  
In addition to the $85 billion initially authorized, the company was cleared to borrow up to another $37.8 billion to ease strains from AIG lending out securities to third parties. It invested some of the received collateral in other assets, including mortgage-backed securities, that have lost value. When the securities borrowers returned them to AIG and asked for their money back, AIG had to make up the difference out of pocket, putting further strains on its coffers.  
  
In a prepared statement, AIG said it had no specific comment on Greenberg's plan "but we are open to all serious proposals that can benefit taxpayers and AIG shareholders. We continue to focus on maximizing the value of our businesses and servicing our customers so we can pay the Fed loan and emerge as a vital ongoing business."  
  
The Federal Reserve Bank of New York had no comment.