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Executives

Charlene Hamrah – Director Investment Relations

Edward M. Liddy - Chairman, Chief Executive Officer

William Dooley - Senior Vice President - Financial Services

Robert Lewis - Senior Vice President, Chief Risk Officer

David Herzog - Senior Vice President, Comptroller

Analysts

Andrew Kligerman - UBS

Thomas Gallagher - Credit Suisse

Daniel Johnson - Citadel Investment Group

[Jay Gell] - Barclays Capital

Gary Ransom - Fox-Pitt Kelton

[Jay Cullen] - Merrill Lynch

[Alane Karaglen] - Bank of America Securities

[Donna Howerstat] - Goldman Sachs

[Auvren Kuman] - J.P. Morgan

John Levin - Levin Capital Strategies

Samuel Crawford - Stone Harbor

[Hang Bu - John Hancock]

Thomas Cholnoky - Goldman Sachs

Colin Devine - Citigroup

American International Group (AIG) Business Update Call October 3, 2008 8:30 AM ET

Charlene Hamrah

Thank you for joining us for this morning’s conference call. Before we begin I’d like to remind you that the remarks made on the conference call may contain projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to asset dispositions, management, operations, products and services, and assumptions underlying these projections and statements.

It is possible that AIG’s actual results and financial condition may differ possibly materially from the anticipated results and financial condition indicated in these projections and statements. Factors that could cause AIG’s actual results to differ possibly materially from those in the specific projections and statements include developments in global credit markets and such other factors as are discussed in Items 1A Risk Factors of AIG’s annual report on Form 10K for the year ended December 31, 2007, in Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operation of AIG’s quarterly report on Form 10Q for the period ended June 30, 2008, and in AIG’s current report on Form 8K dated September 26, 2008 reporting AIG’s entry into a material definitive agreement.

AIG is not under any obligation and expressly disclaims any such obligation to update or alter its projections and other statements whether as a result of new information, future events or otherwise.

And now I would like to turn this conference call over to Ed Liddy, AIG’s Chairman and Chief Executive Officer.

Edward M. Liddy

This is my first call with you all since assuming my roles as Chairman and CEO of this company. I look forward to working with you and I will commit to you that our communications and our transparency will be second to none going forward.

Since assuming my roles about two weeks ago, I’ve had the opportunity to meet and work with the people of AIG. I must stress to you that it’s an extraordinary group of employees. They are very knowledgeable in their spaces, they’re dedicated to their positions and to this company, and they’re focused on overcoming our current challenges. This is an organization that’s used to winning, they want to win in this situation, and we will win.

With respect to our current challenges, I would like to stress that our insurance businesses, our regulated entities, are strong and well capitalized. Our policy holders are secure.

Our challenge rests with the liquidity issues in our financial products business and securities lending. The Federal Reserve Bank, as you all know, has provided us a loan of up to $85 billion to help address the liquidity concerns and the current balance on that loan sits at $61 billion. We are grateful for that bridge. It’s a lifeline and it provides us the flexibility we need to work our way out of this situation. We’re also grateful to our regulators both here and around the world who have been very supportive of our recovery efforts.

The first point I would like to make is a strong viable and nimble AIG will emerge from this crisis. In the future we plan on focusing on and retaining our US property/casualty operations, our foreign general insurance businesses, and the continuing ownership interest in our foreign life insurance operations. The company is exploring divestiture opportunities for its remaining high quality businesses and assets, and the proceeds from any divestitures will be used to repay the Federal Reserve loan and to address our capital structure going forward.

Now going forward, we will have a number of really remarkable businesses with leading market positions and significant competitive advantages. The businesses that we are retaining could not be recreated today. Similarly, to repay our borrowings we will sell a number of extraordinary businesses that are already proving to be highly attractive to buyers. Our goal is to emerge from this process in a timely fashion as a smaller but more nimble company that is solidly profitable and has attractive long-term growth prospects.

I’d like to talk a little bit about the divestiture process. This will be a deliberate and disciplined approach. We’ll sell as many assets as needed to repay our obligations but we’ll use considerable judgment and flexibility in the process. If we are able to monetize the value of the assets in our financial products or securities lending businesses, we will sell fewer assets going forward.

This will be an open and transparent process but we will look favorably upon preemptively priced offers. We want to prevent franchise erosion to maximize the value in cash to AIG. We will have a clear bias towards selling our operations to brand name companies, those with strong ratings and strong balance sheets. We want to have a clear ability to close transactions and to protect our policy holders from announcements through closing. We will tilt our process towards larger transactions but will calibrate them to maximize value.

We’re going to work in close coordination with our partners at the Federal Reserve, the National Association of Insurance Commissioners, and other domestic and international regulatory agencies. We have already formed great partnerships with these organizations, we are working hand in glove, and they will work with us in this asset disposition process.

So as we indicated in our press release this morning, today marks the beginning of AIG’s re-emergence as a powerful worldwide leader in property/casualty with a continuing presence in foreign life. We will divest ourselves of other businesses which will enable AIG to fully repay the borrowings from the Federal Reserve and also to have an appropriate capital structure going forward. And our policy holders and creditors will be protected throughout this process.

This is a very strong company, it’s the largest insurance company in the world, and we will emerge from this crisis.

Those are my prepared remarks. I’d be delighted to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Andrew Kligerman - UBS.

Andrew Kligerman - UBS

I just want to preface my questions with some background. On September 16 it says in the 8K that AIG issued a warrant to the Fed submitting it subject to shareholder approval to obtain 79.9% of the company and then that it was anticipated that there would be a special meeting for such purposes promptly as practicable where the shareholders would have a vote. And it also said that you could borrow up to $85 billion at three months LIBOR + 8.5% but it has no mention of 8.5% interest on undrawn credit and the 2% commitment fee.

Then on the 18th there were reports that the Board named you as CEO, and on the 19th of September AIG re-filed the 8K stating that the corporate approvals and formalities necessary to create this equity interest will depend upon its form, which was very vague.

Then on the 22nd we find out that an agreement was signed by the Fed and it included the preferred stock, not warrants, providing 79.9% ownership and far more onerous terms than originally cited.

Then on September 26 Goldman Sachs states that Ed Liddy resigned as a Director from the Board effective September 23. That’s what brings me to my three questions Ed.

Why did the agreement change, particularly those onerous commitment fees? I want to know why that agreement changed. Secondly, why wasn’t there a shareholder vote? And third, was there a conflict of interest given that you were appointed by Frank Paulson, you served on Goldman Sachs’ board, and Goldman Sachs had a vested interest in AIG’s outcome?

Edward M. Liddy

Let me take them pretty much in the way you’ve laid them out. The agreement that we signed is pursuant to a term sheet. The term sheet as you know is an overall guideline as to what will eventually take place. There were some modifications from the original term sheet to the final document. That’s typically what happens in negotiations. As the Fed ascertained what it could and could not do, those negotiations in the term sheet shifted to what eventually became the final document.

The sales ownership interest in us is in the form of a convertible preferred. That moved away from the initial indication which would have been a warrant. With a convertible preferred that we have and the blank check preferred that we have on our charter, it was not necessary to have a shareholder vote. I look at this Federal Reserve facility as a real lifeline and having it puts us in a very strong position. So I would encourage you to think about those terms.

With respect to Goldman Sachs, there’s no conflict of interest. I notified Goldman Sachs absolutely as soon as I was appointed to this role that I was going to exit the Board. I think it took a couple days just to get all the documents ready and prepared, and they were filed as soon as practical.

I really would encourage Andrew, you and everyone listening to view the Federal Reserve facility as a very positive vote of confidence in AIG. It provides us the flexibility to work our way out of a very precarious liquidity squeeze. You can see what’s going on in the world today. And the Board in its judgment exercising its fiduciary duties very, very carefully and very, very well did what was necessary to secure that lifeline and give us a chance to move forward.

Andrew Kligerman - UBS

No doubt the lifeline is critical, but maybe you could share with us some of the negotiation and still why you don’t think a shareholder vote could have been helpful here?

Edward M. Liddy

I think a shareholder vote could have significantly delayed the process and speed was of the essence. The Federal Reserve, I cannot speak for them and I can only imagine that they weren’t anxious to have us begin drawing down that facility without a very certain document in place. A couple of weeks or a couple of days could have made all the difference in the world in terms of the outcome.

Operator

Our next question comes from Thomas Gallagher - Credit Suisse.

Thomas Gallagher - Credit Suisse

Ownership interest in foreign life, the fact that you’re going to retain an ownership interest. Can you elaborate a bit on that? Should we be thinking about that as a minority interest in a joint venture of some sort or are we talking about retaining full ownership of certain businesses but selling off other pieces of it?

Edward M. Liddy

We have a couple of life operations ex the United States. The one I’m really referring to there is AIA. That’s just a spectacular business. We want to retain a majority interest in that if at all possible and we would flex the size of any minority interest that we would sell. There are other businesses that we have outside the United States primarily residing in our [Alaco] operation. Those businesses we will offer for sale. They are spectacular operations.

Thomas Gallagher - Credit Suisse

So retaining AIA and the thought is having majority interest in AIA and selling off minority stake?

Edward M. Liddy

Yes. I would encourage you to think about this as a highly flexible process. We don’t know exactly where the borrowings from the Federal Reserve will top out at, and the reason we don’t know is we don’t know what market conditions will be like. So to the extent we have to borrow more from the Fed then we will sell more assets.

However if we borrow less from the Fed and/or we’re able to monetize some of the asset values that we have tied up in collateral in our securities lending and FP business or we get very good values early on in the assets that we sell, then we will sell fewer assets. I know the world would like this to be very formulaic and precise but in fact it requires a fair amount of judgment and flexibility for us to do this well.

Thomas Gallagher - Credit Suisse

Can you give a little color on behind the scenes how you think those operations are holding up? Part of the concern for the foreign life ops is you see some images on CNN of customers lining up to take money out at least in the initial phase following the announcement that the agreement with the government. I’m just curious, do you feel like things have stabilized and how do you see that playing out?

Edward M. Liddy

Things have stabilized and I think in asking your question you’ve probably provided your own answer. Whenever you have an announcement that we had with the Federal Reserve providing us a lifeline, I think there’s a period of great initial destabilization. And then once people understand the facts, they begin to view the presence of that lifeline as exactly that. It’s a way for us to deal with things in a logical flexible manner so there’s not a rush to judgment or a panic. Then things calm down.

I have regular meetings with the people that run our businesses and I think they would all tell you that we are doing very, very well in the market place. There are a lot of rumors out there. This is a highly competitive market place and some of our competitors are trying to take advantage of this situation. But we are holding our own and I suspect that we will hold our own going forward.

As I mentioned in my prepared remarks, we’re very sensitive to the fact that these businesses have franchise value. The assets can walk and the intellectual property, the people can walk. We want to protect these businesses that we’re going to put up for sale and that’s why I took a few minutes and reviewed that sale process so you can appreciate and understand the diligence and deliberateness with which we’re going to approach this.

Thomas Gallagher - Credit Suisse

Can you talk a bit about the process behind the liquidity situation at both AIGFP and securities lending? Are we looking at an unwind to these programs, a de-risking? How long do you see that taking to play out? And then related to that, in addition to the asset sales you’ve announced will there need to be any kind of recapitalization for AIG or do you expect that those asset sales will leave the company appropriately capitalized to maintain current ratings?

Edward M. Liddy

There’s a short-term aspect to that answer and a long-term aspect. Let me see if I can attack them both. We want to emerge from this as I mentioned. When I say a smaller company, just the property/casualty operations alone, the domestic P&C operations and the foreign general, just those businesses alone generated in 2007 over $40 billion of revenue. So this is going to be a formidable company that emerges from this.

I fully expect that with the asset sales and to the extent we are able to monetize some of the value in the portfolios in the securities lending and FP, I fully expect us to emerge from this with a capital structure that’s fit to fight going forward. So we’d love it if we generate more than enough cash to both pay down the Fed facility and help us structure our capital position going forward. We want a company that looks and feels like a normal company and can do very, very well in the future.

We are looking at a number of proposals. We are turning over every rock that we can possibly think of to ascertain if there is a way to monetize some of the value in the two portfolios that are causing us some difficulties. As most of you on the telephone know, our issue is one of having to provide collateral, to post collateral on some of these things. And as the markets continue to go south you have to post more collateral.

To the extent things like a Treasury bailout proposal, whatever it is called, passes that could be helpful to us. To the extent there is a relaxation of some of the mark-to-market or fair value accounting that could be helpful to us. But we aren’t relying just upon other people doing things for us. We’re trying to do things ourselves, to look and see if there’s a way that we can monetize some of that value. That would help us pay down the Federal Reserve faster.

The critical point in response to your question is we want to emerge from this with a capital structure that serves us well going forward.

Operator

Our next question comes from Daniel Johnson - Citadel Investment Group.

Daniel Johnson - Citadel Investment Group

Could we talk a little bit about the $61 billion please? Where has that gone since that’s obviously the vast majority of the initial $85 billion?

Edward M. Liddy

That money went exactly where we thought it would go. It went primarily to securities lending and the AIG financial products area. That’s probably in round numbers $53 billion or $54 billion. Our CP lines dried up as it appears they are doing for many other companies around the globe today. Those three uses would be by far the major uses. This is a somewhat odd analogy but I kind of liken it to selling up a bathtub. When you turn the water on you fill up the bathtub initially and then it begins to slow down. But the sources of those dollars went exactly where we thought it would go.

Daniel Johnson - Citadel Investment Group

With your few weeks there have you had a chance or have we come up with any new significant capital or liquidity issues? I’m sure on a liquidity front as you said the sec lending counterparties and others have probably headed towards the doors, but anything to note there especially on the capital front, finding that the capital as previously stated was not accurate?

Edward M. Liddy

No. I would say you understand it extremely well. The markets are in an awfully precarious position and they’re very uncertain. There’s great volatility so just like everyone else we are swept up in that. We don’t have anything new or different that’s emerged over the last couple of weeks.

Daniel Johnson - Citadel Investment Group

If these market conditions stay this way, is there an implicit option to go back and talk about something more than $85 billion?

Edward M. Liddy

I’m not a big fan of the word never. I think what the Federal Reserve has provided us has been very generous and we’re going to do everything we can not to have to go back to them. But they’ve shown enormous flexibility just in doing what they’ve done thus far so I would really like us to focus on what can we do to stay within those limits and to do well in terms of asset sales so that we don’t have to go back and have any further ask.

Operator

Our next question comes from [Jay Gell] - Barclays Capital.

[Jay Gell] - Barclays Capital

I was hoping you could comment on some of the things that maybe weren’t in the release in terms of the potential units to divest including US life and the financial services business?

Edward M. Liddy

I can. Many of the buyers know exactly what that release means and so let me just go over it again. We’re going to retain our US property/casualty businesses, we’re going to retain our foreign general insurance business, and we’re going to maintain a continuing interest in our foreign life operations. Literally everything else that doesn’t fit under that definition we are considering for sale. So in the specific question that you asked, our US life operations we are going to entertain bids for the sale of that business.

[Jay Gell] - Barclays Capital

And the preference is to sell it all as one unit?

Edward M. Liddy

Yes. That was my, perhaps it was too obscure, reference to we have a preference towards larger transactions because they can be done with speed and you attract larger buyers so that will keep our policy holders comforted. There may be some subsectors of the various businesses that it would make sense in order to maximize value to do some disaggregation and there’s a fair amount of judgment that will go into that process. But larger is better. Some disaggregation is good to the extent we are able to get a higher value. Trying to get the ball right down the middle of those two is what we’ll do.

[Jay Gell] - Barclays Capital

In terms of a separate issue, there appears to be a fair amount of concern in the market place as to whether AIG is going to be able to hang on to the large corporate clients within the commercial property/casualty business. How does AIG plan to do that?

Edward M. Liddy

Kris Moor has a pretty well thought out plan to do exactly that. What we’re trying to do is retain customers first and foremost so that we have an opportunity to go back once we’ve stabilized the situation. In a line like directors and officers we have very good retention. It may have slipped 6 or 7 or 8 points from what it used to be. And in other lines we’re doing just fine. So we are trying to concentrate on holding the customers, holding as many lines as we can with a customer so that we can then go back and fight another day as soon as the situation is stabilized. We’re making good progress in that.

It’s also why it’s smart for us to resolve the federal borrowings, get the right capital structure, sell assets and pay things down so that people can see that we are now once again the AIG of old. We won’t be exactly the AIG of old but we’ll have a very secure position and people will be very comfortable in dealing with us.

[Jay Gell] - Barclays Capital

And finally just a technical issue, does AIG plan to file its 10Q consistent with the timeframe that it has in the past?

Edward M. Liddy

Yes. I don’t have any reason to suspect that we would delay that.

Operator

Our next question comes from Gary Ransom - Fox-Pitt Kelton.

Gary Ransom - Fox-Pitt Kelton

I wanted to ask also about the $61 billion that’s been drawn presumably as collateral, especially those parts related to market values that have declined that you may get some of this back some day. How much of that $61 billion do you think is gone forever in a sense as opposed to what you might eventually get back at some point?

Edward M. Liddy

I understand the intent of the question. It’s just about impossible to answer it. Let me give you a sense of what we’ve done. Using BlackRock, a fine operation under Larry Fink’s guidance, we’ve done exhaustive analyses about stress testing. What is the value of the collateral that we have there of the RNBs? And we’ve looked at some best case scenarios, worst case scenarios and even under the worst case scenarios of very substantial continued deterioration in the housing market, the intrinsic value - I hate to use that word - but the intrinsic value is substantially above where we have those assets marked.

So the key to that would be, can we monetize some of that value and retain some of the upside? We’re looking at a number of things that we think may be possible. I have nothing to announce on that today. Subject to my earlier comment, as soon as we do we will communicate with you. We think there will be opportunities to monetize some of those values. It’s just so hard to ascertain right now what that might be.

Gary Ransom - Fox-Pitt Kelton

In saying that you’re going to keep property/casualty, what did that mean on the personal lines business?

Edward M. Liddy

The personal lines business will be sold. We have been looking at that for a while. Much of what we’re announcing today really the organization has been looking at and working on for some period of time. So we determined a while ago that the personal lines operation although excluding the private client group. We intend to keep the private client operation. That’s vital to us in terms of how Kris is able to present a full service capacity for our property/casualty operations going forward. But the personal lines business will be offered for sale.

Operator

Our next question comes from [Jay Cullen] - Merrill Lynch.

[Jay Cullen] - Merrill Lynch

On the preferred stock, the hybrids, are those dividends going to continue? The government has the ability to basically veto those dividends. They’ve already done it with the common. I didn’t know what the view was on the preferreds?

Edward M. Liddy

Someone’s going to have to help me with that. We are not paying any common dividends as you know. It’s a way to preserve capital but we are prohibited from doing that.

Charlene Hamrah

Those instruments are structured as debt and the interest will continue to be paid on those instruments.

[Jay Cullen] - Merrill Lynch

This issue of maybe monetizing some of these tough assets, I’m assuming the previous management had tried extremely hard to do that. Obviously they weren’t successful and the environment’s gotten worse. So are you taking a different approach than they took?

Edward M. Liddy

I would say it’s an all hands on deck approach. We have some of the best lines in this business. Looking at different ways to do that, I think when you have the reality of a fairly substantial Fed borrowing you work very, very diligently exhausting every single opportunity that you can.

[Jay Cullen] - Merrill Lynch

For people to buy some of these, these are big ticket items, and the debt market for everyone as you alluded to is very precarious and has essentially shut down for many. Can a potential buyer access the Fed program to help fund a purchase?

Edward M. Liddy

No, I do not believe so. But let me start a little higher upstream. You are correct. These represent some fairly large purchases. I would not be surprised at all to see non-traditional buyers providing financial support, perhaps some of those sovereign wealth funds. Some of these businesses when purchased by very logical competitors can redefine those companies going forward for decades and decades. There’s the opportunity for potential buyers really to completely redefine and strategically reposition their companies. So I think that there will be very strong demand for these operations.

[Jay Cullen] - Merrill Lynch

You kind of alluded to the TARP and maybe the potential for AIG to access that program but one of the costs there might be giving up more of your equity. Is that something you would consider?

Edward M. Liddy

I’ll wait to see what comes out of any federal rescue plan. What is important to us is that we not be precluded from it and we are not. So if it makes good economic sense for us to be able to turn assets into the Treasury at some value, we would obviously consider it. I think the devil is going to be in the details on that one. Until we can see more of exactly how the Treasury would be purchasing assets; is it a reverse auction or is it at some sort of an intrinsic value; there’s just not enough information to know how that’s going to work. What’s important for us is we would like to be able to access it if it makes sense and we will be able to do that.

Operator

Our next question comes from [Alane Karaglen] - Bank of America Securities.

[Alane Karaglen] - Bank of America Securities

Is there a certain dollar amount that you’re looking for in capital today in terms of the sales? And I understand the flexibility that you need to keep and the fact that the market has eased up so your CP can be refinanced. How are you going to judge what is enough in terms of capital to say okay now we’re fine, we can go forward?

Edward M. Liddy

It’s kind of a Rubik’s Cube and we need to be very flexible and have great judgment as we apply this process. As I mentioned to the extent we borrow more from the Federal Reserve, then we will go deeper into the divestiture process. To the extent the early divestitures produce very good proceeds as I suspect they will or to the extent we’re able to monetize some of the value that’s trapped in the portfolios in securities lending or FP, then we’ll sell less assets. I don’t have a specific number.

What I want to be able to do is to repay any and all borrowings and interest that we owe the Federal Reserve and I’d like to be in a position to have cash and/or existing corporate debt paid down so that the capital structure going forward is appropriate for the businesses going forward. I think we can do that because of the sheer upside of some of the properties that we have for sale. They’re really trophy properties and I think we will fare very well in the sale process.

[Alane Karaglen] - Bank of America Securities

But it seems in order to maximize the value you would need to be able to narrow the gap between the marks and what the organization thinks the intrinsic value is of some of these assets.

Edward M. Liddy

You’re talking about in the securities lending or FP?

[Alane Karaglen] - Bank of America Securities

Yes.

Edward M. Liddy

As I mentioned we’ve had very good analyses done by BlackRock and we shared that with the Fed and some other people who are looking at some structures for us, and we keep coming up with the fact that there is some value there. The question for the entire industry is how do you seize that value. So we’d like to be the first one to be able to answer that question.

[Alane Karaglen] - Bank of America Securities

On the property/casualty business you mentioned retention is quite important and often what you’ve seen companies do when they want to retain business is cut prices and become even more competitive. I know you’ve been busy with other issues. Are you comfortable and have you told the organization that to avoid doing that in terms of the damage that it could do going forward, what are your thoughts on that?

Edward M. Liddy

If that wasn’t my second letter, it was my third letter. We will maintain our underwriting and our pricing discipline. And in fact AIG’s really good at that. In our insurance operations, particularly in our property/casualty area, we are really good at that. You and I have had a relationship for a long period of time. I am all about pricing and underwriting discipline. If you do that well, you’re clearly going to be around for another day. If you do that poorly, you’re really going to be in trouble. I don’t want to solve one problem and create another one. So we are going to remain true to ourselves, true to our underwriting and pricing disciplines, we will have no erosion in that area.

Operator

Our next question comes from [Donna Howerstat] - Goldman Sachs.

[Donna Howerstat] - Goldman Sachs

I was wondering if you could give us some color on what your base case is of how much the $85 billion you expect to ultimately draw? And of that ultimate draw, how much of that would be earmarked for collateral, for capitalized fees and interest on the govy loan and for other purposes? And the second question is with respect to the sales of subsidiaries, those subs that have nonguaranteed debt such as ILFC and AGF, would the debt be going with those entities if and when they’re sold?

Edward M. Liddy

Let me respond to your first question first. We expect that the borrowings from the Fed facility will go up. How high I just do not know. We have high, low and middle of the road plans and contingencies. It will very much be driven by market situations. Again referring back to my response to an earlier question, the bulk of that $61 billion did in fact go out to cover our CP lines, our securities lending liquidity issues, and our FP issues. So it’s difficult to answer that because we just don’t know what condition the market place will be in, whether it will continue to be in a state of unprecedented seizure or not.

The sale of subs that have debt on them, that debt will go with those operations when they are sold.

[Donna Howerstat] - Goldman Sachs

When thinking about how much you borrow from the government, are you planning to draw on that line to pay the commitment fee as well as the interest on both the drawn and undrawn amount?

Edward M. Liddy

No.

Operator

Our next question comes from [Auvren Kuman] - J.P. Morgan.

[Auvren Kuman] - J.P. Morgan

On your AIGFP, the unit that’s caused a fair amount of pain, are you planning to wind that unit down or are you planning to sell it because a lot of the debt at AIGFP is guaranteed by the holding company? And the second question is a broader one relating to your divestiture plans. What kind of timeline do you have in terms of selling all these assets or these operating units that you articulated a little while ago given that the federal loan is extremely punitive for a company that’s rated the way you are, around 12% or so as we speak?

Edward M. Liddy

The first thing I would do is I would encourage you when you use the words fair amount of pain to take out the word fair. The FP situation has caused us a lot of pain. We do intend to wind down that operation. It’s not something as you well know that you can declare on Friday and do by Monday. There are some instructive prior situations that have been wound down when Berkshire Hathaway wound down some of its general RE portfolios, it takes a while to do that. But that business is not in business as you would normally think about it so except for maintaining that which we have and it makes sense to do in order to keep the system moving, we are not entering into any new activity.

With respect to the timeline, once again it’s a delicate balance. The timeline for asset sales or dispositions of businesses we clearly want to maximize the value, and this is not a fire sale. The presence of that Fed line gives us the opportunity to do this in a very orderly and structured way. And we’re going to take that opportunity. I suspect that in being flexible to offers that we probably can do this sooner than perhaps some people might suspect. These properties are not the kinds of things that come around frequently. So companies that can redefine themselves, I think they’re going to be very motivated to put preemptive kind of bids on the table.

We’re well staffed to do this. We have J.P. Morgan and Blackstone guiding us as overall advisors but we have a cadre of very high quality commercial banks and investment banks assigned to selling each of those potential businesses and they either are or they have already in the process of pulling together offering memoranda and we have been contacted over the last two weeks by literally dozens and dozens and dozens of people who would like to buy assets.

Now contact is different than a contract and a sales offer but I think the demand for these properties is going to be very, very high. We will move expeditiously but we’re going to move in a way that maximizes value.

[Auvren Kuman] - J.P. Morgan

Regarding your ILFC unit, there’s a fair amount of chatter as to the tax implications of any potential sale. Would it be fair to say that the tax implications would not have significant bearing on your decision to sell that unit?

Edward M. Liddy

Yes, that would be fair to say that. We do think we have the tax issues pretty well understood and we think in terms of using some of the net operating or tax carry forwards and those kinds of things, we think we’re going to be just fine.

Operator

Our next question comes from John Levin - Levin Capital Strategies.

John Levin - Levin Capital Strategies

Andrew’s question at the beginning and some of the other questions elucidated this answer, but the situation at the moment is that the AIG equity value has $40 billion in the hands of the government and the public shareholders have $10 billion. So I take it what you said is that there was a business judgment, not a statute, not a regulation, maybe not even case law but a business judgment that resulted in this thing.

So my question, and I’ll state them all at the beginning and as you know I try to be respectful and submitted these in writing before this call and I appreciate you calling on me. Did the Board vote on whether a shareholder vote was necessary for this structure? Was that vote unanimous? Was there written or oral advice that you could share with us with respect to this decision? Was there a discussion and evaluation of whether shareholders if offered the vote on the overall plan would turn it down?

Edward M. Liddy

I’m going to give you an answer from 10,000 feet instead of a foot, which some of your questions would imply. First, the Board had an incredible amount of very high quality advice on this, investment banking advice, legal advice, you name it. There were experts in every single area that the Board had to consider in order to make this. The Board in its fiduciary responsibility I believe made the right call in terms of accepting this lifeline so that we have a bridge and we are alive to fight another day.

If you want more particulars, I’ll ask Charlene to call you back at the end of this meeting. Some of the particulars we’ll share with you; others we just simply don’t give everyone access to the information as to what happens in a Board meeting. But we’ll share with you what we can and try to answer your questions.

John Levin - Levin Capital Strategies

My general view is that the terms of this should have provided when the loan is paid back and when you flow through you’re fit to fight, that the government’s 80% ownership is onerous and should have been scaled less assuming the loan were paid back. That’s where I’m coming from and I think that could have occurred once the money was in at the second time when the terms were restructured and it wasn’t exactly a take it or leave it offer at the beginning.

Edward M. Liddy

I would just encourage you to think about that whole issue this way. Getting this arrangement pinned down was absolutely the right thing to do. Getting it pinned down with speed was absolutely the right thing to do. As we demonstrate to our partners at the Fed an ability to run our business well, to pay down that loan, perhaps there’ll be some flexibility on what they do with that 80% ownership on the back end. There’s no commitment, there’s no informal understanding.

I just encourage you to think about how human nature works. When you’re paralyzed with fear about what the future might be, you handle yourself one way. When you have really a constructive partnership and you’re making great progress, perhaps there are other things that can be done. So the important thing for us to do is demonstrate that we are moving forward in an intelligent and flexible way using great judgment in terms of how we run the business and then I think there’s some upside in what we may be able to do with the Federal Reserve.

John Levin - Levin Capital Strategies

I respect that answer and I want to say it was a privilege that you called on me for this question when you knew what it was.

Operator

Our next question comes from [Samuel Crawford - Stone Harbor].

[Samuel Crawford - Stone Harbor]

Going back to the collateral issues, given the circumstances in the market it may very well be the case that one or a number of the counterparties to which you are extending collateral are on shaky credit ground themselves. So I wanted to get a sense of what sorts of protections AIG might have in return of collateral in the event that the quality of the recipient deteriorates? And second in that regard are you all mostly posting on a bilateral basis or are you posting unilaterally?

Edward M. Liddy

I’m going to do the first part and then I’ll need a little bit of help from maybe Steve or Bill on the second part.

We are highly focused on our own situation and secondarily focused on the situations of the people that are on the other side of these trades. We’re sensitive to it but the bulk of our energy right now goes on how we can monetize some of that value. In terms of the kinds of collateral that we are posting, Bill can you address that?

William Dooley

The collateral is mostly cash and it’s posted on a counterparty by counterparty basis.

[Samuel Crawford - Stone Harbor]

What does that mean in terms of bilateral or unilateral and what would it mean for return of collateral if your counterparties deteriorate in quality?

William Dooley

The collateral is still posted on our balance sheet. The collateral is monitored on a daily basis with these counterparties and we do monitor the credit quality of those counterparties. The counterparties predominantly on the major amount of the collateral posted are much higher grade counterparties than I think you’re alluding to. I think the collateral that’s posted on the derivative portfolio is much smaller in nature and it’s the nature of that business and it’s a two-way collateral arrangement so if their credit deteriorates, we have the right in many occasions to pull back collateral as well.

[Samuel Crawford - Stone Harbor]

The second question along these lines, if the accounting authorities and supervisors decide to change fair value rules, will that have an impact on collateral posted or is that irrelevant to the posting of collateral?

Edward M. Liddy

It certainly could but the devil will be in the details and it will also be a function of how quickly they do that. I don’t hold out hope that we’re going to have a wholesale abandonment of fair value accounting. That just is not going to happen. I think there may be, if you look at the recent SEC releases on this, they may be offering more judgment in terms of do you go all the way to the most distressed value or do you consider some intrinsic value at the end of that. So I think what’s being discussed is probably positive both for this company and for the overall capital markets. But the devil is going to be in the details in terms of how it is applied.

[Samuel Crawford - Stone Harbor]

With specific regard to American General, sort of following up on one of the questions [Donna Howerstat] raised, there’s been a lot of clarity or semi-clarity in regards to ILFC but I’m interested in what comment you feel that you may be able to make at this time on the market’s ability of American General given the very different nature of its business?

Edward M. Liddy

You’re referring to American General Finance?

[Samuel Crawford - Stone Harbor]

That’s correct.

Edward M. Liddy

Yes, I would say that’s a business we’re very cautious about doing anything with right now. We’re sensitive to what the funding issues may be but Bill maybe you have more perspective on that?

William Dooley

American General Finance has been around since the 1920s and it serves a very strategic useful purpose for a great part of Middle America even though it does participate in the asset classes that are challenged today. As you can see from previous information we did lower the production rates in that business a couple years ago and the production rates today are at a simmer. So the business continues to perform but at a much lower rate than it has in the past.

Operator

Our next question comes from [Hang Bu - John Hancock].

[Hang Bu - John Hancock]

Just some clarification on the government loan. Your press release said that basically the loan is secured by basically all the assets of AIG except stock in the insurance companies. I’d like to try to be crisp on the non-insurance subsidiaries, for example your financial services businesses and any other non-insurance subsidiaries. Is the loan secured once again by the stock of those companies or are any of those companies giving guarantees or whatever?

Edward M. Liddy

Bob, do you want to do it?

Robert Lewis

The non-insurance company subsidiaries have provided guarantees and there have been pledges of the stock of those as well, but I want to note that we have not pledged the stock of any company that would violate an existing contractual obligation. So to the extent that there was an issue with needing to secure other debt if the stock was pledged, to the extent it would violate an agreement we had entered into, or cause any issue under law, none of those things have been pledged. So we’ve been very deliberate in the manner in which we’ve gone about providing security to the government.

[Hang Bu - John Hancock]

Let me try to be clear here. Say ILFC has some unencumbered assets, so ILFC gave some sort of pledge to the hold co to back up this loan and also I think I heard you say the loan is also secured by the stock of the financial service companies including ILFC. Does that mean if ILFC for whatever reason got into any sort of trouble, then an unencumbered asset at ILFC would basically be shared in any sort of liquidation by the unsecured guys? And I guess the question is was there any way that legally you guys have actually primed the unsecured folks at the unsecured non-insurance company subsidiaries? So is the government simply secured by some unsecured guarantee at the non-insurance subsidiaries or have you devised a way here that the government actually has primed unsecured guys and basically can get at assets?

Robert Lewis

Again as I said, we were very deliberate in the pledging process. ILFC has been excluded. They have not guaranteed the debt or pledged their assets because of contractual restrictions down at the ILFC level. So in the case of ILFC there is no pledge of assets, there is no upstream guarantee.

[Hang Bu - John Hancock]

How about American General Finance?

Robert Lewis

Again that presented challenges with their outstanding documents and there’s been no guarantee nor pledge of assets of that entity either.

Edward M. Liddy

I’d like to take maybe one or two more questions and end this promptly at the half hour.

Operator

Our next question comes from Thomas Cholnoky - Goldman Sachs.

Thomas Cholnoky - Goldman Sachs

Obviously you’ve talked about how strong the individual assets are in terms of their position in the market place. Can you talk about obviously the people aspect of this and how much flexibility you have to ensure that the intellectual capital doesn’t walk out the door and preserve the value of the entities that you intend to hold?

Edward M. Liddy

A couple of thoughts for that. Certainty is better than uncertainty so by declaring today what AIG is going to be going forward and also declaring what businesses probably are not a part of us going forward, that may sound like it’s very unnerving but at least it tells people where they sit. So those individuals who are part of businesses that we intend to divest, they will know that putting their best foot forward helps both them and their people. That’s the first thing I would say.

Second, we have put in place and are putting in place a full array of retention agreements and enhanced severance agreements which will encourage people to stay. Many of those severance agreements have the typical double triggers. We think there’s every reason for people to wait and see who these buyers are.

That’s why I said earlier that for many reasons for both our intellectual property, our people and our policy holders selling the businesses that are going to be divested to brand name companies, strong ratings, strong balance sheets, well capitalized, that’s very critical ingredients of what we’re trying to do. So to the extent we can maximize value and move with speed and even provide more certainty to these folks going forward, I think we’ll be okay.

Thomas Cholnoky - Goldman Sachs

One technical question. On your matched programs like your [MIP] program and I guess the GIAs, are the assets matched with the debt sufficiently? I think there’s about $32 billion of that out there. Will you need to support that debt with some of the resources other than the assets matched against it?

Edward M. Liddy

I’ll answer from 30,000 feet. If you want more detail, we’ll provide it to you. They are matched. Are they matched perfectly? I don’t know but they’re pretty well matched.

Last question.

Operator

Our last question comes from Colin Devine - Citigroup.

Colin Devine - Citigroup

I just want to confirm that selling in an ideal situation you said you would like to sell the US life annuity and I assume pension businesses as one unit to a highly rated insurer with a strong brand. That’s question one. Question two, everything that’s not on your keeper list I assume is going to have to be reclassified as a discontinued operation so I assume we’re looking at a fairly major restatement; if we can touch on that. And lastly, you’re very careful with your language on the international life and annuity businesses about maintaining a continuing interest. Does that mean you would consider potentially right now selling a partial interest in a bunch of those businesses as you work your way through this process?

Edward M. Liddy

Let me take them the way you asked them. Yes, our US life operation as it is defined and as it is constituted is one of the properties which we are offering for sale for divestiture. Our strong intent would be to sell that in total to one buyer. To the extent it might make some sense to take one or two major assets out of that we would consider that. But we are going to look most favorably at those offers that are preemptive and for large slices of our businesses.

With respect to having to treat things as discontinued and then to have a substantial restatement, I don’t think that that is the case. And David, maybe you can comment on that.

David Herzog

We will continue to evaluate the criteria around held for use, held for sale and discontinued operations and we’ll continue to work in conjunction with our independent auditors to do that. But there’s certainly not expected to be any restatement of previously issued financial statements in this regard.

Colin Devine - Citigroup

Reclassification then. I said maybe clarify. That’s a definitive maybe then if somebody thinks they can be discontinued ops.

David Herzog

We will continue to evaluate that quarter-to-quarter based upon the very specific criteria contained in the literature.

Edward M. Liddy

Your last question was about the comment that we made on retaining a continuing ownership interest in the foreign life insurance operations. There’s no mystery in that. AIA is an incredible piece of property. It really is. It is part of the genesis of this company and to the extent we can sell a minority stake in that, we will do that. How big a minority stake? Once again it depends upon how well we do with some of the other assets that we might sell and how far up the borrowing curve we are with the Federal Reserve facility.

There simply is no formulaic answer that I can give you. This requires great judgment, great flexibility as we march through the process of selling assets, and we’ll sell assets as needed in order to repay the Fed and in order to give ourselves a capital structure that’s appropriate for the business going forward. That means we’re going to have to size things as we get information and as we sell assets.

Operator

There are no further questions.

Edward M. Liddy

I have 9:30 East Coast time. I’d like to thank you all for your participation and your interest. This is a terrific company. It will be a terrific company again in the future. We’re committed to communicating with you as openly and in as a transparent fashion as possible. And as we move through this process you can expect more regular communications from us in the future perhaps than you’ve had in the past. Thank you all for your support.

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