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August 11, 2010 Wednesday 11:37 AM EST
SECTION: NEWS & COMMENTARY
LENGTH: 430 words
HEADLINE: AIG to sell most of American General Finance
BYLINE: Alistair Barr, MarketWatch mailto:ABarr@marketwatch.com.Alistair Barr is a reporter for MarketWatch in San Francisco.
SAN FRANCISCO (MarketWatch) — American International Group said Wednesday that it’s selling most of its consumer-loan business American General Finance, the latest effort by the insurer to raise money to repay the U.S. government. AIG (AIG) agreed to sell 80% of American General to funds run by Fortress Investment Group (FIG) , a hedge fund and private-equity firm. Terms of the deal weren’t disclosed.AIG shares fell 3.9% to $38.61 in morning trading Wednesday, while Fortress shares dropped 4.5% to $4.“I’m dismayed that they haven’t disclosed the sale terms,” Cathy Seifert, an analyst at Standard & Poor’s Equity Research, said in an interview. “A company majority owned by the government should be more transparent. People are going to conclude that the terms are not that attractive.”AIG said it will recognize a $1.9 billion pre-tax loss in the third quarter because of the deal. Last week, AIG said it was considering the sale of all or a majority of its $2.4 billion investment in American General.The government committed more than $100 billion to save AIG from bankruptcy in 2008. Now the company is trying to sell assets to repay taxpayers.Even if AIG didn’t get much for American General, the deal is a sign of progress, Seifert said.“It’s a deal,” the analyst said. “To the extent that it’s done and can close that’s a good thing.”American General lends money to consumers, specializing in bill-consolidation loans, home-equity loans, personal loans, home-improvement loans and other loans to help people pay for unexpected expenses.The company used to package up a lot of the loans it made into securities and sell them to investors. However, it was shut out of the securitization market during the financial crisis, undermining its business model. This year, American General has managed to securitize some of its loans, which has helped results and increased the potential value of the business.Still, like some of its customers, American General has a lot of debt. The company holds about $20 billion of assets, but has roughly $18 billion in liabilities, including $17 billion of debt.When the sale to Fortress closes, AIG can take this debt off its balance sheet.“This is a very leveraged entity and AIG will be able to deconsolidate it, so that’s positive,” Seifert said.American General has also suffered as the weak economic recovery keeps loan defaults high. Selling the business will reduce AIG’s exposure to this, she added.© 1997-2008 MarketWatch.com, Inc. All rights reserved. See details at http://custom.marketwatch.com/custom/docs/useragreement.asp.
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