American International Group, Inc. (AIG)

[TRUISM]

Prudential, AIG ‘could divest units in a crisis’
BY ZACHARY TRACER AND JESSE HAMILTON, JULY 04 2014,

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NEW YORK — American International Group (AIG) and Prudential Financial have told regulators they could divest units and halt policy sales to avoid requiring a bail-out in a future crisis.

AIG, the insurer that repaid the cost of a US rescue in 2012, and Prudential, which did not take US Treasury department funds, submitted the wind-down plans for the first time after being designated as systemically risky by federal regulators last year.

The public portions of the plans, released on Thursday, are similar to those submitted by banks in their reliance on unit sales.

If the sale of assets is insufficient to stabilise AIG, the insurer’s main subsidiaries would eventually be liquidated under the supervision of state and national watchdogs, according to the company’s document.

"AIG believes that each resolution strategy is feasible and would not give rise to adverse effects on the financial stability of the US," the New York-based insurer said in the document.

A resolution plan from General Electric’s finance unit, deemed systemically important last year, was also disclosed on Thursday. Banks including Goldman Sachs, JPMorgan Chase and Wells Fargo had proposals posted online that were similar to documents filed a year ago.

If the plans are not credible, regulators can ask for improvements or, if shortcomings persist, eventually force structural and portfolio changes at the firms. The biggest banks have not received a response from regulators to the plans they filed last year.

AIG and Prudential said in the documents that some units could be wound down in chapter 11 bankruptcies, while state-regulated insurance subsidiaries would be handled by those watchdogs.

The "preferred strategy for resolution involves the reorganisation of Prudential," the insurer said. Prudential and its main asset manager "would likely sell certain businesses and reorganise around the businesses each elects to retain", it said.

Prudential, based in Newark, New Jersey, is the second-largest US life insurer.

Number one, MetLife, is in the final stages of consideration to be labelled systemically important, and therefore was not required to submit a plan.

In its aim to prevent a repeat of the 2008 credit crisis, the 2010 Dodd-Frank Act requires the most complex financial firms — banks and non-banks such as AIG — each to plot its own demise.

The companies must send annual "living wills" to the Federal Deposit Insurance Corporation and Federal Reserve that take these agencies through a hypothetical liquidation that will not damage the wider financial system or call for taxpayer intervention.

Bloomberg





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