AIG : The Rabbit hole.

quote:

A Question for A.I.G.: Where Did the Cash Go?

Published: October 29, 2008

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.


_{Donn Vickrey, a forensic analyst, is skeptical of A.I.G.’s past reports. “You don’t just suddenly lose $120 billion overnight,” he said.}

Martin Sullivan, left, former head of A.I.G., with Lynn Turner of the S.E.C. at a House hearing.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.

But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.

Mr. Vickrey and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.

Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at the company over how to value some of its derivatives contracts. An accountant brought in by the company because of an earlier scandal was pushed to the sidelines on this issue, and the company’s outside auditor,PricewaterhouseCoopers, warned of a material weakness months before the government bailout.

The internal auditor resigned and is now in seclusion, according to a former colleague. His account, from a prepared text, was read by Representative Henry A. Waxman, Democrat of California and chairman of the House Committee on Oversight and Government Reform, in a hearing this month.

These accounting questions are of interest not only because taxpayers are footing the bill at A.I.G. but also because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an insurer — and its trading partners — whose cash needs could easily exceed the existing government backstop if the housing sector continues to deteriorate.

Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G., has already said that although he does not want to seek more money from the Fed, he may have to do so.

Continuing Risk

Fear that the losses are bigger and that more surprises are in store is one of the factors beneath the turmoil in the credit markets, market participants say.

“When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets,” said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. “It’s really bad for the markets. Things don’t heal until you take care of that.”

A.I.G. has declined to provide a detailed account of how it has used the Fed’s money. The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management. The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down.

A.I.G. has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by A.I.G.’s many derivatives contracts.

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide.

Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls. “We did that with ACA,” she said, referring to ACA Capital Holdings, a bond insurance company that filed for bankruptcy in 2007.

Of the two big Fed loans, the smaller one, the $38 billion supplementary lending facility, was extended solely to prevent further losses in the securities-lending business. So far, $18 billion has been drawn down for that purpose.

For securities lending, an institution with a long time horizon makes extra money by lending out securities to shorter-term borrowers. The borrowers are often hedge funds setting up short trades, betting a stock’s price will fall. They typically give A.I.G. cash or cashlike instruments in return. Then, while A.I.G. waits for the borrowers to bring back the securities, it invests the money.

In the last few months, borrowers came back for their money, and A.I.G. did not have enough to repay them because of market losses on its investments. Through the secondary lending facility, the insurer is now sending those investments to the Fed, and getting cash in turn to repay customers.

A spokesman for the insurer, Nicholas J. Ashooh, said A.I.G. did not anticipate having to use the entire $38 billion facility. At midyear, A.I.G. had a shortfall of $15.6 billion in that program, which it says has grown to $18 billion. Another spokesman, Joe Norton, said the company was getting out of this business. Of the government’s original $85 billion line of credit, the company has drawn down about $72 billion. It must pay 8.5 percent interest on those funds.

An estimated $13 billion of the money was needed to make good on investment accounts that A.I.G. typically offered to municipalities, called guaranteed investment contracts, or G.I.C.’s.

When a local government issues a construction bond, for example, it places the proceeds in a guaranteed investment contract, from which it can draw the funds to pay contractors.

After the insurer’s credit rating was downgraded in September, its G.I.C. customers had the right to pull out their proceeds immediately. Regulators say that A.I.G. had to come up with $13 billion, more than half of its total G.I.C. business. Rather than liquidate some investments at losses, it used that much of the Fed loan.

For $59 billion of the $72 billion A.I.G. has used, the company has provided no breakdown. A block of it has been used for day-to-day operations, a broad category that raises eyebrows since the company has been tarnished by reports of expensive trips and bonuses for executives.

The biggest portion of the Fed loan is apparently being used as collateral for A.I.G.’s derivatives contracts, including credit-default swaps.

The swap contracts are of great interest because they are at the heart of the insurer’s near collapse and even A.I.G. does not know how much could be needed to support them. They are essentially a type of insurance that protects investors against default of fixed-income securities. A.I.G. wrote this insurance on hundreds of billions of dollars’ worth of debt, much of it linked to mortgages.

Through last year, senior executives said that there was nothing to fear, that its swaps were rock solid. The portfolio “is well structured” and is subjected to “monitoring, modeling and analysis,” Martin J. Sullivan, A.I.G.’s chief executive at the time, told securities analysts in the summer of 2007.

Gathering Storm

By fall, as the mortgage crisis began roiling financial institutions, internal and external auditors were questioning how A.I.G. was measuring its swaps. They suggested the portfolio was incurring losses. It was as if the company had insured beachfront property in a hurricane zone without charging high enough premiums.

But A.I.G. executives, especially those in the swaps business, argued that any decline was theoretical because the hurricane had not hit. The underlying mortgage-related securities were still paying, they said, and there was no reason to think they would stop doing so.

A.I.G. had come under fire for accounting irregularities some years back and had brought in a former accounting expert from the Securities and Exchange Commission. He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.

When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

Mr. Cassano did not attend the hearing and was unavailable for comment. The company’s independent auditor, PricewaterhouseCoopers, was the next to raise an alarm. It briefed Mr. Sullivan late in November, warning that it had found a “material weakness” because the unit that valued the swaps lacked sufficient oversight.

About a week after the auditor’s briefing, Mr. Sullivan and other executives said nothing about the warning in a presentation to securities analysts, according to a transcript. They said that while disruptions in the markets were making it difficult to value its swaps, the company had made a “best estimate” and concluded that its swaps had lost about $1.6 billion in value by the end of November.

Still, PricewaterhouseCoopers appears to have pressed for more. In February, A.I.G. said in a regulatory filing that it needed to “clarify and expand” its disclosures about its credit-default swaps. They had declined not by $1.6 billion, as previously reported, but by $5.9 billion at the end of November, A.I.G. said. PricewaterhouseCoopers subsequently signed off on the company’s accounting while making reference to the material weakness.

Investors shuddered over the revision, driving A.I.G.’s stock down 12 percent. Mr. Vickrey, whose firm grades companies on the credibility of their reported earnings, gave the company an F. Mr. Sullivan, his credibility waning, was forced out months later.

The Losses Grow

Through spring and summer, the company said it was still gathering information about the swaps and tucked references of widening losses into the footnotes of its financial statements: $11.4 billion at the end of 2007, $20.6 billion at the end of March, $26 billion at the end of June. The company stressed that the losses were theoretical: no cash had actually gone out the door.

“If these aren’t cash losses, why are you having to put up collateral to the counterparties?” Mr. Vickrey asked in a recent interview. The fact that the insurer had to post collateral suggests that the counterparties thought A.I.G.’s swaps losses were greater than disclosed, he said. By midyear, the insurer had been forced to post collateral of $16.5 billion on the swaps.

Though the company has not disclosed how much collateral it has posted since then, its $447 billion portfolio of credit-default swaps could require far more if the economy continues to weaken. More federal assistance would then essentially flow through A.I.G. to counterparties.

“We may be better off in the long run letting the losses be realized and letting the people who took the risk bear the loss,” said Bill Bergman, senior equity analyst at the market research company Morningstar.

quote:

Op vrijdag 31 oktober 2008 09:41 schreef SeLang het volgende:

[..]

Ik verheug me al op de boeken die de komende jaren gaan verschijnen over de wantoestanden bij AIG en anderen

quote:

Judge: AIG fraud worth $500 million
Five former insurance executives convicted of manipulating financial statements could face up to life in prison.

November 3, 2008: 1:14 PM ET

Two years ago it seemed that the election would hinge on Iraq, now it's the economy that's on voter's minds. Here's how that happened.

NEW HAVEN, Conn. (AP) -- A federal judge has ruled that shareholders of American International Group Inc. lost more than $500 million as a result of a scheme to manipulate the financial statements of the world's largest insurance company.

The ruling Friday by judge Christopher Droney means five former insurance executives convicted of the scheme could face up to life in prison under advisory sentencing guidelines.

Four former executives of General Re Corp. and a former executive of AIG (AIG, Fortune 500) were convicted in February of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission.

Prosecutors filed court papers citing a study by its expert that concluded the fraud-related losses to AIG shareholders totaled $1.2 billion to $1.4 billion.

They cited another methodology by the expert that put the losses at $544 million to $597 million, but said either method is reasonable.

Droney rejected the higher estimate but said the lower range was reasonable. That finding and a determination that the fraud affected more than 250 victims will increase the advisory guideline sentence range.

The guideline range and a sentencing date have not been set yet.

The defendants challenged the estimate, saying there was no loss to investors. The defendants are Christopher Garand, Ronald Ferguson, Elizabeth Monrad, Robert Graham and Christian Milton.

Ferguson has said in court papers that he anticipated the government will advocate a loss amount that leads to a recommendation for life in prison. But prosecutors made no such recommendation, simply concluding that the defendants should receive a "substantial" prison sentence.

A report by the probation department recommended sentences of 14 years to more than 17 years for each defendant.

Prosecutors said the defendants participated in a scheme in which AIG paid Gen Re as part of a secret side agreement to take out reinsurance policies with AIG in 2000 and 2001, propping up its stock price and inflating reserves by $500 million.

Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.

General Re is part of Berkshire Hathaway Inc., (BRK.A) which is led by billionaire investor Warren Buffett of Omaha, Neb. To top of page

quote:

The Black Hole Gets Bigger: AIG Back for Yet Another Bailout

The Financial Times reports that AIG is up to its old tricks, back again to the trough for more money. Christmas The Iceland credit default swaps settlement is coming soon, you know.

The worst is that AIG is pretending to act as if this is a negotiation as opposed to extortion. Get a load of this crap:

AIG’s executives were on Friday night locked in negotiations with the authorities over a plan that could involve a debt-for-equity swap and the government’s purchase of troubled mortgage-backed securities from the insurer.


Ahem, are they trying to help the government by coming up with a fig leaf? Are they assuming that everyone forgot the terms of the original loan? From the Fed's press release:

The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.


The "interests of taxpayers are protected bit" now looks like a complete joke. The original loan was ALREADY secured by ALL of AIG's assets. Everything that could be hocked WAS ALREADY hocked. And the government has a 79.9% equity interest. So what is this talk of a debt for equity swap? The government doesn't want to go over 79.9%, then it has to consolidate the operations on its balance sheet. And it has the right of first refusal on everything else (the fact that it has all the assets as security means they cannot be sold unless the proceeds are remitted to the Fed. The mechanics ought to be that AIG gets some sort of waiver in order to complete a sale, but I am certain somewhere the lawyers have a procedure in mind, since it was understood from the get-go that AIG would repay the loan via asset sales).

The idea of selling dodgy MBS to the Fed is also ludicrous, but that does not mean the Fed will not go ahead with it. Again, the Fed now has ALL of AIG's assets as security. So it is going to increase what it lends to AIG, since AIG really has the upper hand, and AIG is offering the ruse of pledging the MBS because other banks have used MBS as collateral for loans, and version 1.0 of the TARP was to have banks sell crappy MBS to Treasury. So AIG presumably hopes that the Fed will gamble that the generally inattentive public at large will think this latest move resembles other bank rescue activities and therefore will not make angry calls to Congressmen. But this is all a ruse.

This is the essence of AIG's latest proposal:
Man walks into pawn broker. He says to the person behind the counter, "You know that watch I brought in two weeks ago? I know you lent me $85, but now I need another $50. And I will tell you why you will give it to me. I have a gun with me. I will blow my brains out here, right now. With your nice carpet, I guarantee it will cost you more than $50 to clean up your store. And that's before we get into the cost of keeping your store closed while you clean my grey matter off your walls and what my suicide might do to your store's reputation."


Oh, and we forgot to mention that the man in the story above pulled the same trick last week and it worked like a charm.

The other bit that is offensive is (separately) that AIG is unhappy that it is paying more its bailout than banks did for theirs. The arrogance is breathtaking. Banks and securities firms are regulated by Federal agencies. The fact that they came close to going under says the oversight was defective, and one can argue that the government was required to prevent a disaster that happened on its watch.

The federal government has NO oversight over AIG. Its mess was SOLELY AIG's own doing, and they should consider themselves incredibly lucky that they were so big that the Fed felt it has to intercede.

Now they think they are entitled to demand an improvement of terms? They should be told to take a long walk off a short pier (the management, that is). If we are merely going to salvage random about-to-fail-that-might-hurt-the-financial-markets players, I'd much rather rescue GM. They at least have a better attitude (and Obama made noises that he would demand better fuel efficiency as a quid pro quo). And I have far more sympathy for blue collar workers than AIG executives.

And if the interest really is too much for AIG on a current basis, no reduction in rate or debt-for-equity optics. Just lower the proportion that has to be paid in cash, and add the deferred interest to the principal. No free lunches here.

But then again, the Fed does not want brains and skull fragments all over its board room....

From the Financial Times:

AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan...

People close to the talks said the discussions were on-going and might still collapse, but added that AIG was pressing for a decision before it reports third-quarter results on Monday...

The moves come amid growing fears AIG might soon use up the $85bn cash infusion it received from the Fed in September, as well as an additional $37.5bn loan aimed at stemming a cash drain from the insurer’s securities lending unit.

AIG has drawn down more than $81bn of the combined $122.5bn facility. The company’s efforts to begin repaying it before the 2010 deadline have been hampered by its difficulties in selling assets amid the global financial turmoil.

AIG executives have complained to government officials that the interest rate on the initial loan – 8.5 per cent over the London Interbank Borrowing Rate – is crippling the company.

They compared the loan’s terms with the 5 per cent interest rate paid by the banks that recently sold preferred shares to the government.

One of AIG’s proposals to the Fed is to swap the loan, which gave the authorities an 80 per cent stake in the company, for preferred shares or a mixture of debt and equity.

Such a structure would reduce the interest rate to be paid by AIG and possibly the overall amount it has to repay. An extension in the term of the loan from the current two years to five years is also possible, according to people close to the situation.

The renegotiation of the loan could be accompanied by the government’s purchase of billions of dollars in mortgage-backed securities whose steep fall in value has been draining AIG cash reserves.

AIG is also proposing the government buy the bonds underlying its troubled portfolio of credit default swaps in exchange for the roughly $30bn in collateral the company holds against the assets.

quote:

AIG reportedly in talks over new bailout
By MarketWatch

SAN FRANCISCO (MarketWatch) -- American International Group Inc. reportedly is seeking a new bailout from the U.S. government less than two months after the Federal Reserve came to the insurance giant's rescue with an $85 billion loan, according to a published report.
The Financial Times reported on its Web site late Friday, citing people close to the situation, that AIG
executives were in negotiations Friday night with authorities over a plan that could involve a debt-for-equity swap and the government's purchase of mortgage-backed securities from AIG.
The FT said talks might still collapse, but noted that the insurer was pressing for a decision before it posts third-quarter results on Monday.
American International Group Inc. is expected to report third-quarter loss of 90 cents a share, according to analysts surveyed by Thomson Reuters.
Leading industry analysts have said that turmoil in equity and credit markets has been hampering AIG's efforts to sell some of its businesses, a crucial part of the insurer's plan to repay billions of dollars in expensive government loans.
Rival insurers that may be considering bidding for AIG businesses are now facing their own problems as slumping stock prices and wider credit spreads cut into capital, Andrew Kligerman of UBS wrote to investors about a week ago.
That's slowing what investors hoped would be fast asset sales by AIG, possibly preventing the insurer from quickly repaying the Federal Reserve's loan, the analyst wrote.
Wider credit spreads may be triggering more demands for AIG to post collateral to support the credit default swaps it wrote. That likely increases the amount of money the insurer has to borrow from the Fed, which, in turn, means even more asset sales, the analyst explained.
Kligerman said he expected that AIG would take about $25 billion in write-downs on its credit default swap exposures when the insurer reports third-quarter results.

quote:

AIG's Plan D
Maurna Desmond, 11.09.08, 12:00 PM ET

After nearly eight weeks of questions, the world is likely to get some answers Monday about exactly what's going on with American International Group, the official insurance company of the United States.

The bedragged stock of American International Group (nyse: AIG - news - people ) surged 12.3% Friday after reports emerged that the government and the insurer are in talks to renegotiate the draconian terms of the $85.0 billion bridge loan that kept the company afloat in September and to discuss another massive taxpayer investment in the form of preferred shares, according to TradeTheNews.com.

Nick Ashooh, a spokesman for AIG, did not deny the reports and told Forbes.com, "We continue to evaluate other potential options for addressing our financial issues" specifically in regard to the onerous 14.0% interest rate on AIG's bridge loan.

It's clear that government intends to soften its grip on AIG to try to enable the insurer -- in which the Federal Reserve has a 79.9% stake as a result of its extraordinary action to rescue the company -- to return to health. Reports that it is trying to act before Monday's third-quarter earnings announcement is an ominous sign that the pending news is not good and that resulting downgrades by credit ratings agencies, are likely. If AIG or its subsidiaries get dinged, they may have to post additional collateral for various deals and may have troubled writing new business.

Drastic on-the-fly measures have become business as usual for American International Group. Since the September bailout, the government has tossed AIG two additional tax-payer funded credit lines. Some of this money is being used to replace borrowings under the original $85.0 billion bridge loan, but it is hard to see when the cash spigot will be turned off. This is because the plan for AIG to pare down its businesses and use the proceeds of asset sales to pay back its borrowings appears increasingly unlikely, leaving taxpayers on the hook for the long haul.

Chief Executive Edward Liddy said divestitures would be an "open and transparent process" and that deals might be announced as soon as September. As of Friday, no disposals have been reported. The garage sale hasn't been much of a success so far, in part because AIG isn't under immediate pressure to sell now that it has the Fed's cash. But the longer it remains on life support, the more the risk that the value of the company's businesses will deteriorate, given the global financial crisis.

"We recognize that the environment has gotten more difficult, but we have additional flexibility with two credit facilities and the quality of our businesses," said Ashooh. "There's a lot of activity but this process will play out over months."

The insurer's determination to avoid fire sales may be futile. For one thing, the likely buyers are competing companies -- who might benefit more from letting the situation drag on and attempting to grab clients and employees who desert AIG. Potential acquirers with a less Machiavellian bent can still be conservative about when and how much they bid, knowing the the firm has to sell some of its assets at some point.

quote:

AIG May Get Expanded Government Funds of $150 Billion (Update1)

Nov. 10 (Bloomberg) – American International Group Inc., the insurer bailed out by the U.S., may get an expanded government rescue package valued at more than $150 billion that includes lower interest rates and more time to repay the debt.

The U.S. will reduce the original $85 billion loan that saved New York-based AIG in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by the company, according to a person familiar with the matter. The funds will help AIG retire part of its credit-default swap holdings and bolster its securities lending operations, said the person, who declined to be identified because the plan hasn't been officially announced.

The changes may give Chief Executive Officer Edward Liddy more time to salvage AIG, which needed U.S. help to escape bankruptcy after three quarterly losses exceeding $18 billion. Liddy's plan to repay the original loan by selling units stalled as plunging financial markets cut into their value and forced potential buyers to shore up their own balance sheets.

``It makes a lot of sense to renegotiate the terms,'' said Andrew Kligerman, a New York-based analyst at UBS AG, in an interview before the disclosure. By giving AIG more time to sell units, the government ``has a better opportunity to recover its capital,'' he said.

Michelle Smith, a spokeswoman for the Federal Reserve in Washington, and AIG's Nicholas Ashooh declined to comment. AIG is scheduled to disclose third-quarter results later today. Terms of the expanded package were reported earlier by the Wall Street Journal. AIG rose 19 cents today to $2.30 in German trading.

quote:

AIG: And Did We Mention $10 Billion in Casino Fun?

The federal government has been generous to AIG. The train wreck of an insurance company has pocketed more than $150 billion in bailout funds: When a first loan of $85 billion and a second one of $38 billion just weren’t enough, the Federal Reserve and the Treasury delivered an apparently foolproof plan of buying back the sinking securities that AIG had insured through credit-default swaps.

But the Wall Street Journal reports today that AIG may still be hungry. It turns out that while run-of-the-mill credit-default swaps were its biggest loser, AIG also managed to lose another $10 billion in bets tied loosely to mortgages and corporate debt.

Says the Journal:

The details of the trades go beyond what AIG has explained to investors about the nature of its risk-taking operations, which led to the firm’s near-collapse in September. In the past, AIG has said that its trades involved helping financial institutions and counterparties insure their securities holdings. The speculative trades, engineered by the insurer’s financial-products unit, represent the first sign that AIG may have been gambling with its own capital.

Too bad AIG didn’t mention this earlier. As the Journal notes, “the terms of the current $150 billion rescue package for AIG don’t cover” the newly disclosed debts:

The structure of the soured deals raises questions about how the insurer will raise the funds to pay the debts. The Federal Reserve, which lent AIG billions of dollars to stay afloat, has no immediate plans to help AIG pay off the speculative trades.

The Journal reports that AIG is now in the position of “having to raise funds to pay off its partners” to cover its casino debts.

AIG’s execs might want to visit Gamblers Anonymous, which offers the following questions for those who feel they may have a problem:

* Did gambling affect your reputation?
* Have you ever felt remorse after gambling?
* Did you ever gamble until your last dollar was gone?
* Did you ever borrow to finance your gambling?

quote:

AIG BAILS ON LOANS FROM FEDS

Uncle Sam may not get paid back as promised in its $150 billion bailout of American International Group, the giant insurer conceded.

AIG had agreed as a condition of its recent government lifeline to escape bankruptcy that it would repay at least $60 billion by selling valuable assets.

However, CEO Ed Liddy admitted yesterday that it may not be that easy to raise the cash.

"These are challenging times to undertake divestiture," Liddy acknowledged at a Hong Kong luncheon speech, far from the ears of Washington, DC, lawmakers. "It's quite possible that the pace and order of our divestitures will change."

AIG promised to sell life insurance, retirement services and an airplane-leasing unit to repay a $60 billion government loan in its overall $150 billion - and counting - rescue package, in exchange for Uncle Sam taking a 79.9 percent stake in AIG.

Among units being shopped are American Life Insurance Co.'s Japanese unit, AIG Star Life Insurance Co. and AIG Edison Life Insurance Co.

Meanwhile, AIG is slashing prices to win new insurance business and gain quick cash, stoking industry fears that it's taking on too much new exposure but charging too little in premiums to ever pay future claims.

Such practices nearly sank the industry in the 1980s, and this time could leave taxpayers holding the bag for huge claims.

"I think it's fair to say they're doing some very stupid things in the market," said Edmund Kelly, CEO of rival Liberty Mutual.