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The planned sale by American International Group (AIG) of its east Asian life insurance business was ultimately just too large a deal. The three-month drama finally came to a close on June 2nd when Prudential dropped its offer for American International Assurance (AIA) after the AIG board rebuffed a request for a cut in the US$35.5bn price.

Still deeply in hock to the US government, AIG now needs a new strategy for AIA. Plan A, keeping AIA, is not a possibility. Plan B was the initial public offering in Hong Kong that the company put on ice when the Pru tabled its offer for the entire firm, Plan C, this past March.

With B and C now looking less appealing, it may be time to consider Plan D: a partial split-up of AIA to allow easier sales to a variety of suitors. After all, insurance companies are still keenly interested in the rapidly growing markets of emerging Asia. They may simply need to take smaller bites.

Read more at Financial Services Briefing: “Time for AIG’s Plan D” (June 2nd)

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Prudential’s US$35.5bn bid for AIA, an Asian life insurer owned by troubled American conglomerate AIG, is plenty bold. The price exceeds the British suitor’s current market value and would require a mammoth rights issue. Markets are nervous about the aggressive move, sending the Pru’s share price down sharply since Monday’s announcement.

Prudential may be the boldest, but it is far from the only western life insurer with designs on Asia. The region’s fast growth and low insurance penetration is attracting attention from a number of firms, as detailed in an article on this blog’s parent site.

Earlier today, the agency auditing America’s bank bailout funds—or the Office of the Special Inspector General for the Troubled Asset Relief Program, if you prefer—published a report about AIG. Specifically, the agency details the efforts of the New York Federal Reserve to negotiate with banks on the other sides of AIG’s ill-fated trades in the credit default swap market.

As the agency describes it, up to US$30bn was authorised in November 2008 to purchase the rapidly souring collateralised debt obligations on which AIG’s trades were based. In the end, US$27.1bn was paid to AIG’s counterparties for the assets. They were also allowed to keep US$35bn in collateral that AIG posted before the government-funded vehicle bought out the contracts.

“Questions have been raised,” the report notes, about whether the deal constituted a “backdoor bailout” of banks that did business with AIG. This remains a contentious issue because the government—as described in great detail in the report—was unable to force “haircuts” on the price of the assets acquired and, even worse, because the majority of beneficiaries from the deal were foreign. (It also didn’t help that the largest domestic recipient was Goldman Sachs.)

Although the sums have been reported before, seeing Société Générale at the top of the list of banks to rake in funds funnelled “inexorably and directly” from US government coffers—quelle horreur!—is reigniting criticism of Timothy Geithner, president of the New York Fed during the AIG affair and now US treasury secretary.

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