American International Group’s (NYSE:AIG) subsidiary AIG Financial Products Corp. has filed for Chapter 11 bankruptcy protection. The move completes AIG’s wind-down of the infamous unit that played a big role in the 2008 global financial crisis. The bankruptcy will not have any significant impact on AIG or Corebridge Financial (CRBG), the company’s recently spun-off life insurance and retirement business.
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AIG Financial Products’ (AIGFP) bad bets on subprime mortgages pushed AIG to the brink of bankruptcy amid a global financial crisis. The U.S. government’s $182 billion bailout package saved AIG from collapsing. AIGFP, which AIG started winding down since the financial crisis, currently has no material operations or businesses and no employees.
As per the Wall Street Journal, the bankruptcy filing reveals that AIGFP owed $37.4 billion to AIG. However, this amount was part of the significant losses that the company booked in 2008. The amount stemmed from the significant portion of the bailout funds that AIG extended to AIGFP through inter-company loans so that the latter could satisfy its obligations to counterparties. AIG fully repaid the bailout package to the U.S. Federal Reserve by January 2013.
While many lawsuits were filed against AIGFP, only one remains pending. The pending lawsuit was filed by 46 former AIGFP executives in 2019. These executives intend to recover profit-sharing bonuses that they feel they are entitled to under deferred compensation plans that predate the 2008 financial crisis.
However, as per the company, the 2008 financial crisis losses eliminated all of the profit-sharing bonus account balances, and AIGFP never generated profits following the financial crisis. As per the company’s SEC filing, “Pursuant to the terms of the Plan of Reorganization, the only funds available to the 46 former FP executives to extinguish their claims would be an equal share in a limited pool of $1 million.”
Is AIG a Good Stock to Buy?
Wall Street is cautiously optimistic about American International stock, with a Moderate Buy consensus rating based on seven Buys and four Holds. The average AIG stock price target of $66.09 implies 5.5% upside potential from current levels. Shares have advanced 10.1% year-to-date.
