AIG 2008 Annual Report Download - page 209

continued to deteriorate, posing risks to AIG’s ability to divest assets at acceptable values. As announced on
March 2, 2009 and as described in Note 23 herein, AIG’s restructuring plan has evolved in response to these market
conditions. Specifically, AIG’s current plans involve transactions between AIG and the NY Fed with respect to AIA
and ALICO, as well as preparation for a potential sale of a minority stake in its property and casualty and foreign
general insurance businesses.
AIG believes that these current plans are necessary to maximize the value of its businesses over a longer time
frame. Therefore, some businesses that have previously been prepared for sale will be divested, some will be held
for later divestiture, and some businesses will be prepared for potential subsequent offerings to the public.
Dispositions of certain businesses will be subject to regulatory approval. Proceeds from these dispositions, to the
extent they do not represent required capital of AIG’s insurance company subsidiaries, are contractually required to
be applied toward the repayment of the Fed Facility as mandatory repayments.
In connection with the restructuring plan, in the fourth quarter of 2008, AIG sold its interest in a Brazilian joint
venture with Unibanco AIG Seguros S.A. and entered into contracts to sell AIG Private Bank Ltd., HSB Group, Inc.,
its Taiwan Finance business and a small German general insurance subsidiary. These operations had total assets and
liabilities with carrying values of approximately $9.6 billion and $8.2 billion, respectively, at December 31, 2008.
Aggregate proceeds from the sale of these businesses, after giving effect to the repayment of intercompany loan
facilities, are expected to be $1.9 billion. Through February 18, 2009, AIG has also entered into contracts to sell its
life insurance operations in Canada and certain Consumer Finance businesses in the Philippines and Thailand.
Statement of Financial Accounting Standards No. 144 requires that certain criteria be met in order for AIG to
classify a business as held for sale. At December 31, 2008, the held for sale criteria in FAS 144 were not met for
AIG’s significant businesses included in the asset disposition plan. AIG continues to evaluate the status of its asset
sales with respect to these criteria.
Subject to satisfaction of certain closing conditions, including regulatory approvals, AIG expects those sales
that are under contract to close during the first half of 2009. These operations had total assets and liabilities with
carrying values of approximately $14.1 billion and $12.6 billion, respectively, at December 31, 2008. Aggregate
proceeds from the sale of these businesses, including repayment of intercompany loan facilities, is expected to be
$2.8 billion. These eight transactions are expected to generate $2.1 billion of net cash proceeds to repay outstanding
borrowings on the Fed Facility, after taking insurance affiliate capital requirements into account.
AIG expects to divest its Institutional Asset Management businesses that manage third-party assets. These
businesses offered for sale exclude those providing traditional fixed income and shorter duration asset and liability
management for AIG’s insurance company subsidiaries. The extraction of these asset management businesses will
require the establishment of shared service arrangements between the remaining asset management businesses and
those that are sold as well as the establishment of new asset management contracts, which will be determined in
conjunction with the buyers of these businesses. AIGFP is engaged in a multi-step process of unwinding its
businesses and portfolios. In connection with that process, certain assets have been sold, or are under contract to be
sold. The proceeds from these sales will be used for AIGFP’s liquidity and are not included in the amounts above.
The NY Fed has waived the requirement under the Fed Credit Agreement that the proceeds of these sales be applied
as a mandatory repayment under the Fed Facility, which would result in a permanent reduction of the NY Fed’s
commitment to lend to AIG. Instead, the NY Fed has given AIGFP permission to retain the proceeds of the
completed sales, and has required that such proceeds be used to voluntarily repay the Fed Facility, with the amounts
repaid available for future reborrowing subject to the terms of the Fed Facility. AIGFP is also opportunistically
terminating contracts. AIGFP is entering into new derivative transactions only to hedge its current portfolio, reduce
risk and hedge the currency, interest rate and other market risks associated with its affiliated businesses. Due to the
long-term duration of AIGFP’s derivative contracts and the complexity of AIGFP’s portfolio, AIG expects that an
orderly wind-down will take a substantial period of time. The cost of executing the wind-down will depend on many
factors, many of which are not within AIGFP’s control, including market conditions, AIGFP’s access to markets via
market counterparties, the availability of liquidity and the potential implications of further rating downgrades.
AIG 2008 Form 10-K 203
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)