OUR PLAN IS EXPLICITY DESIGNED TO AVOID HAVING TO DIVEST AIG ASSETS AT FIRE-SALE PRICES

TO BE NOTED: Via Zero Hedge:

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TESTIMONY BY MR. EDWARD M. LIDDY,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
AMERICAN INTERNATIONAL GROUP
BEFORE THE U.S. HOUSE OF REPRESENTATIVES COMMITTEE
ON OVERSIGHT AND GOVERNMENT REFORM
WEDNESDAY, MAY 13, 2009
MR. CHAIRMAN, RANKING MEMBER ISSA, MEMBERS OF THE COMMITTEE,
THANK YOU FOR THE INVITATION TO APPEAR BEFORE YOU TODAY.
I APPRECIATE THE OPPORTUNITY TO DESCRIBE FOR THE COMMITTEE THE
BUSINESS PLAN WE ARE EXECUTING IN ORDER TO PUT AIG’S TROUBLES
BEHIND IT, REPAY THE MONIES THAT WE OWE THE AMERICAN TAXPAYER,
AND SECURE AN OUTCOME THAT HELPS TO PUT THE AMERICAN
ECONOMY BACK ON TRACK.
AS YOU KNOW, I WAS ASKED LAST SEPTEMBER TO OVERSEE A
RESTRUCTURING OF AIG FOLLOWING THE GOVERNMENT’S DECISION TO
RESCUE THE COMPANY.
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WE ARE WORKING HARD TO DETERMINE THE DESTINY OF THE
COMPONENT PARTS OF AIG. OUR PLAN CONTEMPLATES THAT AIG’S BEST
BUSINESSES WILL ESTABLISH SEPARATE IDENTITIES FROM THE PARENT
HOLDING COMPANY. THE PARENT COMPANY WILL BECOME SMALLER.
THE FINANCIAL PRODUCTS UNIT WILL NOT EXIST. THE MAJOR
INSURANCE COMPANIES WILL EMERGE WITH DIVERSE PRODUCTS,
STRONG MANAGEMENT, AND CLEAR GROWTH STRATEGIES WORTHY OF
INVESTOR CONFIDENCE.
HOW LONG THE PLAN WILL ULTIMATELY TAKE WILL VERY MUCH DEPEND
ON HOW QUICKLY AND HOW STRONGLY THE GLOBAL ECONOMY
RECOVERS. AND, BECAUSE WE ARE ALL COMMITTED TO ENSURING THAT
THE MISTAKES OF THE PAST ARE NOT REPEATED, WE MUST TAKE THE
TIME AND EXERCISE THE DILIGENCE TO DO THIS RESTRUCTURING
PROPERLY.
LET ME BE CLEAR – OUR PLAN IS EXPLICITY DESIGNED TO AVOID HAVING
TO DIVEST AIG ASSETS AT FIRE-SALE PRICES. IN FACT, JUST THE
OPPOSITE IS TRUE. WE INTEND FOR TAXPAYERS TO REALIZE THE FULLEST
POSSIBLE VALUE FROM EVERY ASSET DISPOSITION. AND WE INTEND THAT
EVERY COMPANY THAT EMERGES AT THE END OF THE RESTRUCTURING
WILL BE STRONG, TRANSPARENT, AND A CREDIT TO ALL OF ITS OWNERS.
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WE HAVE ALREADY MADE SUBSTANTIAL PROGRESS IN THIS
RESTRUCTURING EFFORT, PRINCIPALLY IN FOUR KEY AREAS:
1. WE HAVE REDUCED, BUT NOT YET ELIMINATED, THE SYSTEMIC
RISK THAT AIG PRESENTS TO THE GLOBAL FINANCIAL SYSTEM;
2. WE ARE SELLING ASSETS AND BUSINESSES, DESPITE ADVERSE
CONDITIONS IN GLOBAL FINANCIAL MARKETS;
3. WE ARE STABILIZING AIG’S LIQUIDITY SO THAT WE DO NOT NEED
SUPPORT BEYOND THOSE AMOUNTS THAT THE GOVERNMENT HAS
ALREADY AUTHORIZED, ALTHOUGH AS I HAVE SAID BEFORE THE
STATE OF THE ECONOMY WILL BE A FACTOR; AND
4. WE ARE RESTRUCTURING SOME BUSINESSES FOR PUBLIC
OFFERINGS, FOR LATER DISPOSITION, OR TO BE WOUND DOWN SO
THAT FUTURE LOSSES CAN BE MITIGATED OR AVOIDED.
ACROSS THESE FOUR AREAS, WE HAVE, IN RECENT WEEKS, ACHIEVED A
NUMBER OF IMPORTANT MILESTONES, WHICH UNDERSCORE THE
PROGRESS WE ARE MAKING.
IN PARTICULAR, WE ARE TRANSFERRING TWO MAJOR FOREIGN LIFE
INSURANCE COMPANIES – ALICO AND AIA – INTO SPECIAL PURPOSE
VEHICLES IN EXCHANGE FOR A SUBSTANTIAL REDUCTION IN AIG’S DEBT
TO THE FEDERAL RESERVE BANK OF NEW YORK. WE EXPECT TO
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COMPLETE THE CONTRACTUAL ARRANGEMENTS FOR THESE TRANSFERS
IN THE NEAR FUTURE.
WE ARE ALSO TRANSFERRING THE GLOBAL PROPERTY & CASUALTY
INSURANCE FRANCHISE, AIU HOLDINGS, INTO AN SPV. THIS MOVE WILL
SECURE THE VALUE OF THAT VERY SUBSTANTIAL BUSINESS IN
PREPARATION FOR THE POTENTIAL SALE OF A MINORITY STAKE, WHICH
ULTIMATELY MAY INCLUDE A PUBLIC OFFERING OF SHARES DEPENDING
ON MARKET CONDITIONS.
AND WE CONTINUE TO MAKE SIGNIFICANT PROGRESS IN WINDING DOWN
THE COMPLEX DERIVATIVES PORTFOLIO AT AIG FINANCIAL PRODUCTS.
WE HAVE REDUCED THE FINANCIAL PRODUCTS RISK POSITIONS FROM
44,000 TO 27,000, AND HAVE REDUCED THE NOTIONAL EXPOSURE FROM A
PEAK OF APPROXIMATELY $2.7 TRILLION TO APPROXIMATELY $1.5
TRILLION TODAY.
WE CONTINUE TO EXPLORE MULTIPLE OPTIONS TO BREAK APART THESE
TRADING BOOKS SO THAT WE CAN REDUCE THE REMAINING RISKS, SELL
OFF PORTIONS OF THE BUSINESS, REPAY OR OTHERWISE RETIRE THE
AIGFP DEBT, AND EXIT THIS SEGMENT OF THE FINANCIAL PRODUCTS
BUSINESS.
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WE CONTINUE TO WEIGH EVERY DECISION REGARDING THIS
RESTRUCTURING WITH SEVERAL CRITERIA IN MIND: WILL THIS ACTION
FACILITATE A REDUCTION IN SYSTEMIC RISK? IS THIS ACTION THE BEST
USE OF THE FEDERAL ASSISTANCE WE ARE RECEIVING? WILL THIS
ACTION ENHANCE OUR ABILITY TO PAY BACK THE GOVERNMENT? THE
RESTRUCTURING EFFORTS I HAVE DESCRIBED ARE A REFLECTION OF THIS
THOUGHT PROCESS.
SO, TOO, ARE THE GOVERNANCE IMPROVEMENTS WE ARE WORKING TO
BRING TO THE COMPANY. AIG IS AN INCREDIBLY COMPLEX ENTITY. IT
HAS A GLOBAL FOOTPRINT AND AN INTRICATE CAPITAL STRUCTURE
CHARACTERIZED BY OVER 4,000 LEGAL ENTITIES, CROSS-OWNERSHIP,
AND MYRIAD SPECIAL PURPOSE STRUCTURES( NB DON ). OUR RESTRUCTURING
PLAN MUST MAKE AIG LESS COMPLICATED. WE ARE WORKING EVERY
DAY TO STREAMLINE THE ORGANIZATION AND CREATE EFFICIENCIES
THAT WILL ENHANCE OUR CORE BUSINESSES AND IMPROVE
TRANSPARENCY.
THE INFUSION OF SUBSTANTIAL U.S. GOVERNMENT CAPITAL TO AIG
BROUGHT WITH IT A SUBSTANTIAL NEW SET OF RELATIONSHIPS FOR THE
COMPANY: FIRST AND FOREMOST, WITH THE AMERICAN TAXPAYER AS
AIG’S LARGEST SINGLE SHAREHOLDER; WITH THE TAXPAYERS’
REPRESENTATIVES HERE IN CONGRESS; WITH THE FEDERAL RESERVE
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AND U.S. TREASURY AS OUR PRIMARY DAY-TO-DAY PARTNERS IN
GOVERNMENT; AND MORE RECENTLY, WITH THE TRUSTEES ALSO
APPEARING TODAY.
GIVEN AIG’S UNIQUE SITUATION, THESE RELATIONSHIPS ARE NOT ONLY
NEW, THEY ARE IN MANY WAYS UNPRECEDENTED. WE WORK CLOSELY,
FOR EXAMPLE, WITH THE FEDERAL RESERVE BANK OF NEW YORK AND
THE U.S. TREASURY. REPRESENTATIVES OF THE FED AND TREASURY,
AND THEIR ADVISERS, ARE ENGAGED WITH VARIOUS AIG OFFICES EVERY
DAY. WE VIEW THEM AS OUR PARTNERS.
YET, AS WE FORGE THIS PARTNERSHIP, THE PARTNERS KEEP TO THEIR
RESPECTIVE ROLES: THE FED, LIKE ANY RESPONSIBLE CREDITOR,
MONITORING CAREFULLY AND ADVISING UPON OUR STRATEGIC
APPROACH. AND AIG’S EXECUTIVE LEADERSHIP DEVISING AND
EXECUTING OUR STRATEGIC PLAN AND MANAGING THE COMPANY IN
CLOSE CONSULTATION WITH THE BOARD OF DIRECTORS.
WE ALSO CONSULT VERY CLOSELY WITH THE TRUSTEES – AND WE
APPRECIATE THE TIME THEY HAVE DEVOTED TO IMMERSING
THEMSELVES IN THE INTRICATE DETAILS OF OUR RESTRUCTURING PLAN
AND OTHER CRITICAL ISSUES. THEIR MATURE BUSINESS JUDGMENT IS AN
ASSET TO THIS SITUATION.
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I HAVE LED AIG FOR EIGHT MONTHS NOW. AND I WANT TO ASSURE YOU
THAT THE PEOPLE AT AIG TODAY ARE WORKING AS HARD AS WE CAN TO
CONTINUE TO SERVE OUR POLICYHOLDERS AND CUSTOMERS, AND TO
SOLVE AN EXTREMELY COMPLEX SET OF PROBLEMS FOR THE BENEFIT OF
AMERICA’S TAXPAYERS.
WE NEED YOUR HELP AS WELL TO ACHIEVE THE RESTRUCTURING OF AIG
SUCCESSFULLY. IT IS CRITICAL THAT WE NOT LOSE SIGHT OF THE FACT
THAT WE ARE PARTNERS. WHEN THE EMPLOYEES OF AIG MAKE
MISTAKES, WE EXPECT TO BE CRITICIZED. BUT RAMPANT,
UNWARRANTED CRITICISM OF AIG SERVES ONLY TO DIMINISH THE VALUE
OF OUR BUSINESSES AROUND THE WORLD – TO THE DETRIMENT OF OUR
SHAREHOLDERS, INCLUDING TAXPAYERS, WHO OWN SOME 80% OF AIG.
WE RECOGNIZE OUR RESPONSIBILITY TO WORK HAND IN HAND WITH THE
GOVERNMENT TO PRESERVE THAT VALUE, AND I ASSURE YOU THAT IS
OUR GOAL. WE CONTINUE TO WELCOME A FRANK AND OPEN DIALOGUE
WITH CONGRESS ON OUR PROGRESS IN RESTRUCTURING, SO THAT YOU
CAN BE IN A POSITION TO SUPPORT OUR EFFORTS. THIS SUPPORT IS
ESSENTIAL AND WILL HELP US TO PRESERVE THE VALUE OF AIG
FRANCHISES FOR THE BENEFIT OF AIG’S STAKEHOLDERS – THE AMERICAN
TAXPAYER MOST OF ALL.
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WE CANNOT CONTROL THE MARKET CONDITIONS THAT WILL PARTLY
DETERMINE THE TIMING OF AIG’S RESTRUCTURING. BUT WE ARE
CONFIDENT THAT OUR APPROACH IS RIGHT, AND THAT IF WE DO THIS
TOGETHER WE CAN DEMONSTRATE TO THE WORLD THAT RESPONSIBLE
GOVERNMENT AND CAPITALISM ARE STILL THRIVING IN THE UNITED
STATES.
WITH THAT, MR. CHAIRMAN, I THANK YOU AGAIN FOR THE OPPORTUNITY
TO APPEAR BEFORE YOU TODAY AND AM HAPPY TO ANSWER ANY
QUESTIONS YOU AND THE COMMITTEE MAY HAVE."