The AIG Rescue

After the Fannie Mae and Freddie Mac rescue, the U.S. government is at it again. This time it's insurance giant, AIG, to the tune of US$85B.

Here at home, the Insurance Commission released a press statement yesterday that the local subsidiary of AIG, known as Philam, is still financially strong. The parent company is in need of capital to meet the capital requirements of financial rating agencies. Before the Federal rescue, a bridge loan was sought from the subsidiaries. Looks like the bridge loan didn't materialize.

What are the repercussions of the takeover?

1. The US$85B is two-year emergency loan at 11.5% interest to AIG. How will AIG repay this? Obviously, the company has to sell off its assets to be able to make the payments. According to the local grapevine, my previous employer is eyeing AIG's reinsurance business. Let's wait and see.

2. The financial rating downgrade and the takeover would certainly affect the policyholders confidence on the company. The government takeover is just a temporary remedy. It's not a dole-out but a loan.

3. Higher taxes for the Americans. This is already the third takeover in one year!

4. For the consumers: lost of confidence towards AIG.

I have yet to see what's in store for the AIG's Philippine operation. Other than insurance, they are into property management, BPO, banking, credit card services, mutual funds, etc. All the prestige, the wealth that is AIG's, all gone.