What the New AIG Will Look Like

After three years of assets sales and debt repayments, the transformation of AIG is nearing an end. The final phase begins today with the start of the U.S. Treasury's sale of a 92.1 percent stake in the insurance giant, which it saved from failure in the fall of 2008.

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These days AIG is a shadow of its former self. Since late 2008 it has sold, or partially sold 27 businesses it considered non-core. Among those lopped off: The global life insurance business Alico which was sold to MetLife for $16.2 billion, the energy portfolio once run by its financial products unit, and a Taiwanese credit card company.

The aim of the sales was to transform the former Dow component into a firm with two primary businesses, a global property and casualty business known as Chartis and a domestic life insurance and retirement business known as SunAmerica. That is how AIG describes itself today, though its still owns the aircraft leasing business ILFC, and a mortgage insurer United Guaranty. AIG has indicated both of these businesses are non-core and could be sold if it finds a buyer willing to pay an appropriate price.

As a result, AIG's total assets are now $611 billion, down from $860 billion. Predictably, the firm has also seen revenue and profits decline during the makeover. From 2007 to 2010 revenue dropped 25 percent to $77.3 billion, while profits tumbled 64 percent to $5.6 billion. As AIG gets ready to hit the reset button, CEO Bob Benmosche believes over the long term it can generate annual net income of six to eight billion.

AIG's Winners & Losers

That’s cold comfort for shareholders who bought the stock before AIG was bailed out.

Billions is what the company's former CEO and Chairman Hank Greenberg lost during the firm's near death experience. Greenberg presided over the build up of AIG Financial Products—the division that brought the firm to the brink by writing credit default swaps. Having run the firm for forty years, he was ousted in 2005 during an accounting scandal. It did not stop him from weighing in frequently during the financial crisis to criticize the government bailout and offer his own solutions. He was especially critical of the asset sales saying they were destroying shareholder value, and that the market at the time prevented AIG from receiving a fair price for the businesses.

During his time as CEO and Chairman, Greenberg created and administered an executive bonus plan that not only made many former executives rich, it also kept them at the insurance giant because receiving the payouts typically meant staying at the company for years after the bonuses were doled out. Greenberg himself at one time was the largest individual shareholder in the insurance giant he helped build, and in a March, 2009 interview, when the stock was trading at a couple of dollars a share, he told CNBC his personal fortune had fallen by "about two billion" dollars.

Now running the financial services firm C.V. Starr, Greenberg sold much of the stock once held in the bonus program to UBS in March of last year. UBS paid $278 million, or $27.82 a share for 10 million of the 14 million shares owned by Starr International, another Greenberg-run business. The stock will be delivered to UBS in blocks of 2.5 million shares each month from March through June of 2013. Should the price move and stay above $27.82, UBS will be in the money.

Out of the money right now is Bruce Berkowitz, manager of Fairhholme Capital, a mutual fund firm that is the second largest AIG shareholder. Berkowitz began accumulating his now 44 million shares of AIG at the end of 2009, paying an average of about $31.40 a share. At AIG's closing price Monday, he is out about $65 million dollars, but keep in mind Berkowitz is a long term investor. He can wait it out if he chooses, though in a May call with investors he said he did not expect the government to sell AIG's stock below the company's book value of about $47 a share. The stock, which has fallen 39 percent since the beginning of the year closed Monday at $29.98.

What the government and AIG are hoping for once the Treasury's sale is complete—a process expected to take a year and a half—is for the U.S. taxpayer to come out ahead. In order for this to happen, the government needs to sell its stock in the company for an average price of $28.70 a share or more. If that happens, the U.S. will actually record a profit on the $180 billion bailout of the insurance firm.