By Hugh Son
March 11 (Bloomberg) — The Federal Reserve Bank of New York and American International Group Inc. agreed to shoulder as much as $450 million in losses tied to the insurer’s Japan real estate bets as part of the sale of a division to MetLife Inc.
MetLife won an accord to split most declines on $1 billion in commercial mortgages included in the $15.5 billion purchase of the AIG unit, according to a MetLife regulatory filing and the company’s chief financial officer. A corporate vehicle owned by the Fed and New York-based AIG will use MetLife stock gained in the sale to pay for future real estate losses, reducing the assets left to repay taxpayers, said two people with knowledge of the arrangement.
AIG’s Japan mortgage holdings were deemed a “more troubled asset” by MetLife, which is also indemnified from losses on one of the U.K. businesses it will acquire in the purchase of American Life Insurance Co. AIG said March 8 it is divesting Alico, which operates in more than 50 countries including Japan, to pay down bailout debts on a $60 billion Fed credit line.
“You have to ask yourself, ‘does the American taxpayer have any hope of getting their money back any other way besides selling this business?’” said William Cohan, a former JPMorgan Chase & Co. banker and author of “House of Cards,” about the financial crisis. An agreement for one side to retain some risk is typical in deals “when the buyer and seller have a difference of opinion about an asset,” he said.
Read more here: http://www.businessweek.com/news/2010-03-11/fed-shoulders-aig-loan-losses-to-ease-sale-of-unit-to-metlife.html
