Maurice Greenberg, American International Group's former chief executive officer, has called on AIG management to seek funds from the federal relief program while it continues to rework its debt through additional borrowing.

A filing with the Securities and Exchange Commission disclosed that Mr. Greenberg wrote AIG CEO Edward Liddy, urging him to take advantage of the federal Troubled Assets Relief Program to find better credit terms and avoid a forced fire sale of company assets.

Mr. Greenberg–still a major AIG stockholder who is now CEO of C.V. Starr, once a close affiliate of AIG–painted a bleak picture of the company that, he said, is having trouble keeping accounts and is losing employees.

He said the value of assets is declining, and that “the crippling combination of declining asset values and extremely poor market conditions make it difficult to consummate any sale of assets at an acceptable price and on a timely basis.”

Converting the current $85 billion government loan to the TARP program would allow a large portion of the original facility to be repaid and redeployed elsewhere in the financial system with no loss to the American taxpayer, according to Mr. Greenberg, who left AIG in March 2005 after government charges that bogus finite reinsurance deals had artificially boosted the company's balance sheet.

He also said that stakeholders in the New York-based company would be treated no better or worse than anyone else, while under the current lending program almost all stakeholders stand to lose.

Both AIG and the federal government want to see a beneficial outcome, noted Mr. Greenberg, but the current program “offers little hope of that happening.” He said Mr. Liddy's prompt action is needed to make the necessary change.

The company had no comment about Mr. Greenberg's suggestions, according to an AIG representative, Joe Norton.

In an SEC filing, AIG said it applied for participation in the Federal Reserve Bank of New York's Commercial Paper Funding Facility to borrow $20.9 billion. The borrowing does not apply to any of the company's insurance units.

The money would be used to meet working capital needs, refinance outstanding commercial paper as it matures, and make voluntary prepayments on the $85 billion credit facility it has with the Federal Reserve. The commercial paper has friendlier terms and rates than the current federal facility, where AIG is paying more than 8 percent annual interest. With the commercial paper, the loan rate is reportedly less than 2 percent.

The company has not drawn all of the money available to it under the credit facilities, according to Mr. Norton.

As of Oct. 29, he said a Federal Reserve report showed AIG had borrowed $83.5 billion. Of that, $65.5 billion came from the original $85 billion federal loan, incurring $331 million in interest and fees. The company has also drawn $17.7 billion from a subsequent $37.8 billion government credit facility arrangement.

The current borrowing does not include the commercial paper request, he said.

Meanwhile, New York Insurance Superintendent Eric Dinallo said he is “actually a little bit disappointed” by how the press has handled news regarding incentive outings and retreats for top producers organized by AIG companies after the government agreed to extend its $85 billion loan.

Speaking at a meeting of the Association of Professional Insurance Women, he said AIG should certainly worry about how such outings are preceived, but press reports that focus on this issue and damage the company's reputation fail to consider the larger picture that was envisioned when the government decided to extend its loan.

“I really believe that people should step back and think. If we wanted to ruin the company, we could have done Chapter 11. That was a real option,” Mr. Dinallo said.

That option was not exercised because it was thought a bankruptcy filing would cause “tremendous stress” on AIG's operating companies–the strength of which made the government comfortable enough to go forward with its loan, he added.

AIG is experiencing problems executing transactions that will raise capital to repay the loan, Mr. Dinallo explained, because of market forces rather than the quality of the company's assets.

In the current market, he said, it is difficult to finance even the most basic transactions, noting that once the credit crunch eases, transactions will likely be spurred.

Special Reports /

Greenberg Urges AIG To Tap Relief Fund

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