SIGTARP Report: AIG Will Be Tough to Regulate
Almost four years after the government spent $161 billion dollars to rescue American International Group, and management has spent countless hours restructuring it, a report by the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, suggests the insurance giant may still be too big and complicated to regulate.
“Although AIG has made changes while in TARP, it remains one of the world’s largest companies with hundreds of subsidiaries in more than 130 countries,” SIGTARP’s Quarterly Report to Congress pointed out in a special section devoted to AIG.
The Special Inspector General is an independent office charged with oversight of the Troubled Asset Relief Program. Christy Romero has held the post since February of 2011.
The report goes on to say that even if the nation’s third largest insurance company is named a non-bank SIFI, or systemically important financial institution and is regulated by the Federal Reserve, the central bank, “ as its primary supervisor, will face enormous examination, enforcement, supervision and logistical challenges in its responsibility to provide comprehensive and effective oversight.”
The report does not recommend breaking up AIG , and a spokesman for SIGTARP told CNBC it does not believe the insurance giant is too big to regulate.
While noting effective oversight of AIG is vital to ensuring history does not repeat itself, the report repeatedly warns effective oversight will be a very big undertaking.
Regulating AIG, the report said, will require the “Federal Reserve to have extensive expertise with and knowledge of a wide array of nonbanking businesses and their risks” including AIG’s aircraft leasing business and its securities lending business among others.
In a statement AIG said, “At AIG we welcome additional regulatory oversight, which combined with the discipline we have imposed on our company, only serves to make AIG much stronger.”
As for state of the government’s efforts to rescue the company, the report points out that AIG remains in TARP as the TARP’s largest investment.
On the brink of failure in 2008, AIG was rescued by the government through what is usually reported as a $182 billion bailout packagemade up of loans and guarantees. One reason for AIG’s near failure, a few of its wide ranging businesses, including a securities lending business and a financial product unit underwriting credit default swaps, escaped regulatory supervision. Those two units were primarily responsible for the firm’s near collapse.
The report also details how much is owed the government in the wake of the bailout. Pegging the total amount of dollars extended to AIG by the U.S. Treasury and the Federal Reserve Bank of New York at $161 billion, the report said all but $30.4 billion has been repaid. Keep in mind the Treasury still owns a 61 percent stake in AIG, so if it sold all its shares at Tuesday’s closing price of $30.32 a share, that stake would be worth slightly more than $33 billion, meaning taxpayers would realize a small profit.
That profit has been promised repeatedly by the company's CEO Robert Benmosche. Benmosche came out of retirement in August of 2009 to run the troubled firm. Under his watch, the firm’s undergone a restructuring that has cut its assets to $552.4 billion from just over $1 trillion in 2007 and trimmed the number of its subsidiaries to 219 from 245.
The insurers paid a price for those moves. Revenue fell to $64.3 billion in 2011 from $81.5 billion in 2007 as the company has sold some key businesses, including ALICO, a foreign life insurance firm, in order to repay Uncle Sam.
While AIG likes to boast it is a simpler firm now with two primary businesses, its global property and casualty business called Chartis and a domestic life insurance business known as SunAmerica, the Special Inspector General’s report suggests it still may be too complicated for regulators to oversee.
-By CNBC's Mary Thompson
This post has been updated since it was first published.