Archive for February, 2009

U.S. may break up AIG to keep it afloat: report (Reuters)

Wednesday, February 25th, 2009 | Finance News

NEW YORK (Reuters) –
American International Group (AIG.N) and U.S. authorities are in advanced discussions over a radical restructuring that would split the insurer into at least three government-controlled divisions in an attempt to keep it afloat, the Financial Times reported on its website, citing people close to the situation.

The insurer's board is due to meet on Sunday and the company is on track to announce the overhaul as early as Monday, said the report, citing people close to the situation.

The restructuring, described by one insider as a "controlled break-up," could lead to the end of AIG's 90-year history as a stand-alone global insurance conglomerate.

It also could provide a template for carving up other troubled financial groups -- such as Citigroup (C.N) -- should they be brought under government control, the people involved said, according to the report.

Under the plan, the government would swap its current 80 percent holding in the insurer for large stakes in three units -- AIG's Asian operations, its international life insurance business and the U.S. personal lines business. A fourth unit, made up of AIG's other businesses and troubled assets, could also be formed, the FT reported.

In return, the authorities would relax the terms, or even cancel a large portion, of a $60 billion, five-year loan to AIG and convert $40 billion worth of preferred stock into shares in an effort to ease the company's burden, the Financial Times said.

If the plan goes ahead, AIG would remain as a holding company for now. But people involved in the talks say that that company could disappear if the government decides to recoup taxpayers' investments in the insurer by selling or listing the three divisions separately.

The final shape of the new rescue attempt -- the third government bailout of AIG in five months -- could still change as talks among company executives, the U.S. Treasury, the Federal Reserve and credit-rating agencies continue, the FT said.

A spokesman for AIG was not immediately available for comment.

(Reporting by Euan Rocha; Editing by Gary Hill)

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Citigroup close to reaching deal with government: report (Reuters)

Wednesday, February 25th, 2009 | Finance News

NEW YORK (Reuters) –
Citigroup Inc (C.N) is closing in on an agreement to boost the U.S. government's stake in it to as much as 40 percent, the Wall Street Journal reported on its website, citing people familiar with the situation.

A deal could be announced as soon as Thursday, it said.

But a greater U.S. stake will bring a slew of new complications for executives of the New York company, the report said.

Mexican law bars any institution more than 10 percent-owned by a foreign government from running a bank in that country. Some Citigroup executives are worried that an increased U.S. stake might subject the bank to pressure to relinquish some or all of its ownership of Grupo Financiero Banamex, the No. 2 bank in Mexico by assets, the Journal said.

Though Citigroup is loath to shed Banamex, seen as a crown jewel of the bank's operations, executives have concluded that the issue will probably have to be resolved through diplomatic channels between the United States and Mexico, people familiar with the matter said, according to the report.

A representative of Citigroup was not immediately available for comment.

(Reporting by Euan Rocha; Editing by Gary Hill)

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Obama urges quick action on Wall Street reform (Reuters)

Wednesday, February 25th, 2009 | Finance News

WASHINGTON (Reuters) –
President Barack Obama called on Wednesday for a sweeping overhaul of Wall Street regulations, saying big changes were needed to avoid a repeat of the financial meltdown.

Obama convened a high-level White House meeting on the issue that included Democratic and Republican lawmakers who said they would work with the administration to craft legislation in the next few weeks. Obama, a Democrat, said "painful experience" showed the rules needed to be modernized.

The economy cannot sustain "21st century markets with 20th century regulations," Obama told reporters after the meeting with lawmakers.

"If we once again guide the market's invisible hand with a higher principle, our markets will recover, our economy will once again thrive and America will once again lead the world in this new century as it did in the last," he said.

Obama's comments rattled investors. U.S. stocks fell after a day of choppy trading.

Obama, who took office on January 20, weighed in on oversight of the ailing financial sector the day after his first address to Congress, in which he sought to rally public support for his economic remedies.

Obama and other leaders of the Group of 20 nations will meet in London in April to discuss ways to improve the global financial system. Obama wants to signal that the United States has no intention of dragging its feet on the effort.

The G20 -- comprised of the United States and major European economies as well as fast-growing economies like China -- is looking at how to reshape the financial regulatory system that was largely shaped toward the end of World War Two at the 1944 Bretton Woods conference.

Turmoil throughout the banking and financial system caused by the subprime mortgage crisis is at the core of the recession that has spread worldwide.

There is wide agreement among financial market experts -- both in the United States and around the world -- that the rules governing financial institutions are in dire need of modernization.

Some experts believe that moving ahead quickly on the regulatory overhaul will help repair the shattered financial system by restoring trust. But others say tackling that while the markets are still in crisis might complicate matters.

"Strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors and ultimately to keep those financial institutions strong," Obama said.

AIMING FOR APRIL

New York Senator Charles Schumer, a member of the Democratic leadership, said the Treasury Department is working with lawmakers to overhaul financial regulations.

The aim is to have a framework for such legislation by April 2 when Obama goes to the G20.

Schumer said the United States wants G20 leaders to know what the United States is planning, at least in general terms, to avert possible conflicts with efforts overseas.

"In the financial world, if we were to legislate and Europe would do something totally different, it might undercut everything we do," Schumer told reporters on Capitol Hill.

"Our intention is to try to get this done in the coming weeks and months," Senator Christopher Dodd, chairman of the Senate Banking Committee, told reporters after the White House meeting.

The European Union is also stepping up the pace of financial regulation reform.

The executive European Commission published guidelines on Wednesday for an EU-wide approach to dealing with toxic assets at banks and a report to be debated by EU leaders called for two bodies to coordinate oversight of financial institutions across Europe.

Obama said the need for regulatory reform was a global one.

"We must recognize that the challenges we face are not just American challenges, they are global challenges," he said.

Well before the mid-September collapse of Lehman Brothers led to a meltdown in the financial markets, Obama had urged a wide-ranging overhaul of the patchwork system of Wall Street regulatory agencies. He said the weak and outdated system would leave Wall Street vulnerable in a crisis.

Obama gave a speech on the subject at NASDAQ in September 2007, and in another speech in March 2008, he outlined principles of his vision for updating the financial rules.

(Additional reporting by Thomas Ferraro and Matt Spetalnick; editing by Patricia Zengerle)

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