AIG: Maurice Greenberg’s article on the day The Wall Street Journal It could have caused a stroke. I’m not sure if you’ve read such a slanted, self-serving editorial for too long. I was so shocked because The Wall Street Journal You will post such pimping nonsense. Whatever the case, we all know Big Mo controls AIG’s stock pools directly and through his management of CV Starr, so let’s just say we know where he’s coming from. When he started arguing for the inconsistency in the bailout, he kind of had my ear. But when he kept praising Citigroup’s package as he chastised his AIG deal, I couldn’t help but call the Bull$hit.
So far, the government has shown everything except a consistent approach. She did not help the Lehman Brothers. But it has already pushed for a much-publicized and now-abandoned plan to buy up troubled assets. The government has also pushed for an American International Group (AIG) punitive program that benefits only counterparties to swap the company’s defaults. It is now buying redeemable and non-voting preferred shares of some of the country’s largest banks.
The Citi deal makes sense in many ways. The government will inject $20 billion into the company and act as guarantor for 90% of losses from $306 billion in toxic assets. In return, the government will receive $27 billion in dividend-paying preferred stock and 8% guarantees, giving the government a potential stake in Citi of about 8%. The Citi Board of Directors should be congratulated for insisting on a deal that preserves jobs and benefits taxpayers.
But the government’s strategy for Citi differs markedly from its initial response to the first companies that faced liquidity crises. One of those companies was AIG, the company I’ve been leading for many years.
Maintaining the status quo will result in tens of thousands of jobs lost, billions of dollars lost to pension funds that are important contributors to AIG, and the savings of retirees and millions of ordinary Americans wiped out. This is not what the broader economy needs. It’s a loss-loss bid for all but AIG’s credit default swap counterparties, which will become complete under the new deal.
The government should instead apply the same principles it applies to Citigroup to create a win-win situation for AIG and its stakeholders. First and foremost, the government must provide a federal guarantee to meet AIG’s counterparty guarantee requirements, which have consumed the vast majority of government funding to date.
The purpose of any federal aid must be to preserve jobs and to allow private capital to replace government as soon as private capital becomes available. The structure of the current deal with the AIG government makes this impossible.
The government’s role should not be to force the company out of business, but instead to help it stay in business so it can continue to be a taxpayer and employer. This requires a review of the terms of the federal government’s assistance to AIG to avoid the disintegration of that company and the devastating consequences that would follow.
Hank, you have to be kidding me. American taxpayers Saved Citigroup’s lifeAnd for that we may get up to 8% of the company. This is called a “punitive program” in Hank’s language For US taxpayers. In my world when you save a company, you own all the shares, not 1/12 of the shares. The fact that the taxpayer gets up to 80% of the AIG – that now makes sense. I agree with Big Mo’s claim that “the purpose of any federal aid should be to preserve jobs and to allow private capital to replace government as soon as private capital becomes available.” But this has nothing to do with stock ownership after the restructuring. He then heartbrokens by saying, “Maintaining the status quo will lead to tens of thousands of jobs, billions of dollars in losses to pension funds that are important contributors to AIG, and the savings of retirees and millions of other ordinary Americans to be wiped out.” Well, Hank, that’s 100% on you. You should have thought things through before building a company and culture that bet on everything – and lost. You tell that retiree, that retiree how you screwed them up. This is called integrity. This somewhat veiled call for a personal bail is insulting and insulting at the same time. And I don’t buy it. I’m sure my fellow American taxpayers are not.
private property: The series of secondary sales of private equity interests LP is almost certain to accelerate. It is one of those slow train wrecks that is hard to watch. Calculus is easy to understand: public equity values are falling, PE values are more stable and falling more slowly, PE as a percentage of total assets is rising to unacceptable levels, precipitating a wave of IPR sales. An interesting feature of this dynamic is the autocorrelation, whereby PE values are slow to adjust despite public market comparisons available. If industrial companies are down 40%, don’t think a portfolio of private equity holdings should be traded in the industry sector More than 40% down Because of lack of liquidity? However, that’s not how many private equity funds choose to see the world. Regardless, the secondary market is just a market — and the discounts being placed on high-profile funds like KKR and Terra Firma reflect that reality. Pensions and endowments have to throw things off, and try to do so with a fraction of their foundation. But even at low selling prices it is difficult to transport goods. In the next few months, we’ll see how desperate these investors are. Could we see KKR trading at 30 cents on the dollar? It’s possible. And scary.
venture capital: Today I attended an interesting brown bag with my friends at betaworks. Much of the discussion was about financing in today’s hostile environment. Here are some stories from the conversation:
Be prepared to live with your current investment syndicate.
If possible, get a wealthy investor as part of your syndicate.
Capital increase from 18 to 24 months no less. This can be done through a combination of raised capital as well as reduced operating burnout.
Restructurings are getting ugly. Investors, whether at home or abroad, are demanding a haircut from the last round as well as a reprioritization of capital so that they are paid off in full before anyone else gets anything. It looks, smells and feels like crowded. This is why it is important to have 24 months of principal in the bank up front.
In these recession times, alliances are formed between management and new investors versus old investors. Misalignment of interests can lead to stagnation and push the company over the edge.
There was a lot but these were the highlights. Even with today’s difficulties, there was still a lot of excitement about new companies and new ideas, with confidence that the money would come to those who really deserved it. In short, there is hope.