Taxpayers to have say on AIG

AIG's shareholders meeting on Tuesday will put in place the government's choices for new leadership, but repaying the taxpayers is still a ways off.

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By David Goldman, staff writer

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NEW YORK ( -- AIG is expected to formally install its new board on Tuesday, when the company holds its first annual shareholders meeting since U.S. taxpayers were given majority control.

The three trustees that represent the government's 80% controlling interest in the troubled insurer plan to elect six new officers to the 11-member board of directors that is tasked with helping AIG repay more than $70 billion debt owed to taxpayers.

The company has previously said that it could take up to five years before the government is fully repaid.

Among those expected to be ousted from the board is Chief Executive and Chairman Edward Liddy, who said last month that he intended to step down from both positions.

The new board will be tasked in the coming weeks and months with finding a new chairman and CEO. Those positions are expected to be separated.

The new leadership will also oversee the company's roadmap to recovery, nicknamed "Project Destiny." The plan involves the government taking a stake in AIG's foreign life insurance units (AIA and ALICO) and AIG selling up to 20% of its property and casualty business (AIU) in an initial public offering.

The new board. Some experts are disappointed with the directors that the trustees will put in place. The list includes former executives from American Express (AXP, Fortune 500), Boeing (BA, Fortune 500), KPMG, Delphi, Sears (SHLD, Fortune 500) and Northwest Airlines (DAL, Fortune 500).

"Independent directors should be experienced in the insurance business, but can someone from Boeing explain compensation structure?" asked Andrew Barile, chief executive of Andrew Barile Consulting Corp. "These people are not going to bring value to the company."

Still, others say the new directors will bring a different kind of experience to the insurer.

"Notice how a number of these guys are coming from troubled companies," said Stewart Johnson, portfolio manager at Philo Smith & Co. "Perhaps their experience at troubled companies will serve the board well in terms of trying to help AIG."

Johnson also said that since AIG is such a large company with a great number of businesses, added background in financial services, large international aircraft manufacturer, audits, and retail will help the company make headway in its recovery efforts.

AIG (AIG, Fortune 500) recently made some headway on Project Destiny. On Friday, the insurer said it would fast track the AIA and ALICO sales, paying down $25 billion of its Federal Reserve loan in the process. But the loan is far from paid back. After the government takes hold of the stakes in the fall, AIG would still have a little over $17 billion to pay back on that particular loan.

Long road to repayment. The bailout of AIG is as large as it is complex. In addition to the $43 billion Fed loan, the Treasury has lent the company about $40 billion as part of the Troubled Asset Relief Program, and Treasury has made roughly $30 billion more available to the company. Furthermore, the New York Fed took nearly $50 billion in toxic assets off the company's books last fall.

In addition to controlling 80% of the insurer, the government receives interest payments on the various loans it has given AIG. When the AIA and ALICO sales are completed, taxpayers will own $75 billion of assets formerly held by the insurer.

But many of those assets are quickly losing value. During the first quarter, the New York Fed said the roughly $50 billion of toxic assets it took hold of lost a whopping $4.9 billion in value. The central bank has lost even more on the holdings in the current quarter, and they are now valued at just over $36 billion.

On the other hand, AIG's foreign insurance units are some of the company's healthiest, and experts say the taxpayers could come out on top when it's time to sell.

"The insurance subsidiaries are reasonably healthy, and if you can get those companies sold in a reasonable market, there's definitely some money to be made there," said Julie Grandstaff, managing director of insurance consultant StanCorp Investment Advisers.

Also at the annual meeting on Tuesday, shareholders will have the opportunity to vote on a 20-1 reverse stock split. Shares of AIG were trading at about $1.43 on Monday after having more than quadrupled in the recent near 4-month stock market rally. Still, AIG's stock is down more than 88% from the day before the company's bailout was announced in September.

AIG has a long road to recovery, and Liddy estimated the company would be unable to repay the government for three to five years -- if ever. Still, Grandstaff said the shareholder meeting will likely be uneventful.

"I don't think there are any surprises waiting under the covers," Grandstaff. "They've been pretty transparent, for a change." To top of page

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