As head of a company that has taken the largest financial lifeline from U.S. taxpayers, Edward Liddy knows best if the assistance so far will be sufficient. But American International Group’s CEO admits that given the choppiness of financial markets, he can’t assure that AIG will not dip into government finances again. “I wish I could say yes,” Liddy said last week in an interview with Gannett News Service.

On Monday, AIG reported its worst quarterly loss ever, $24.47 billion for the third quarter of 2008. It also accessed U.S. government funds for the third time – getting $40 billion from the U.S. Treasury in exchange of preferred shares, boosting the U.S. government’s stake in AIG to more than $150 billion.

But Liddy points out the aid is not coming cheaply. The insurance giant also re-worked the terms of the loans that it received the previous two times, dropping the interest rate to 6 percent from 10 percent. But it also will pay a 10 percent annual dividend on the $40 billion in preferred shares. “We are paying the taxpayer handsomely for the help we’re getting,” says Liddy.

Not everyone is convinced that taxpayers will come out ahead.

“Whenever the government thinks it has a handle on AIG, the problems get greater … even AIG cannot model its own risks,” says Richard Burson, professor of finance at Wharton Business School. That’s because it has become extremely difficult to value the complex derivatives debt business that AIG got into, and the company has had to pony up billions in cash in recent weeks.

“The announcement of Bailout Two for AIG is an admission that Bailout One did not work,” says Donald Light, senior analyst at Celent, a financial research and consulting firm.

On Tuesday, Liddy had more controversy to deal with following an ABC News report that AIG held a sales meeting at a luxury resort in Phoenix last week. Liddy defended AIG, saying it bore just 10 percent of the costs of the conference of brokers and consultants who sell financial products from AIG and other insurers, and the meeting was essential to doing business.

“Anything we do is incredibly scrutinized and it’s damaging to our employees,” an aggravated Liddy said, adding that AIG has canceled 160 events so far. The insurer has come under heavy criticism from lawmakers for its extravagant retreats for employees even as it was taking emergency funding.

Congressman Elijah Cummings, D-Md., senior member of the House Committee on Oversight and Government Reform, was one lawmaker unhappy with the latest news. “AIG is coming to the government claiming to be in critical condition … but they are still going out partying and acting as healthy as ever,” he said.

“We cannot afford to keep throwing money into a bucket with a hole in it.”

Liddy is looking ahead and says will start selling AIG’s assets in the next couple of months, including a life insurance unit in Asia and an aircraft leasing firm. “We will have thinned out, and emerge a smaller but stronger company,” he said.

Gannett News Service

AIG Won’t Say It’s Done With Loans

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