Morgan Stanley Selected as Fed Adviser for AIG Transactions

By Alyn Ackermann, senior associate editor, BestWeek
A. M. Best
July 20, 2009

NEW YORK, Jul 20, 2009 (A. M. Best via COMTEX) -- The Federal Reserve Bank of New York has entered into an agreement making Morgan Stanley its financial adviser for selling assets or stock offerings from American International Group Inc., according to documents posted on the bank's Web site.

Morgan Stanley potentially could earn tens of millions of dollars in its advisory role and as global coordinator of any initial public offerings of shares in AIG companies, according to the agreement posted on the Web site. The documents list potential transactions involving 24 AIG companies.

Morgan Stanley received a $4 million advisory fee and will receive a quarterly $2.5 million fee under the agreement. The firm will earn transaction fees for each sale or IPO based on the equity value of the transactions, according to the documents.

The fees run on a sliding scale, from 100 basis points (1%) for transactions with an equity value between $300 million and $500 million to a 15-basis-point fee on $20 billion in equity value.

For example, Morgan Stanley will receive a $5 million fee for a transaction with an equity value of $500 million, and $30 million on an equity value of $20 billion. Additionally, Morgan Stanley will be reimbursed for expenses.

The company agreed to a 20% reduction in its fees if it receives fees of $5 million each for least three transactions.

The agreement gives Morgan Stanley a two-year window to be named global coordinator and lead book-running manager.

The companies listed in the agreement include three that AIG has said it is positioning for IPOs or the sale of a minority stake: American Life Insurance Co., American International Assurance Co. Ltd. and AIU Holdings, a new entity containing at least a half-dozen companies that comprise its core property/casualty businesses, including AIG Commercial Insurance Group and AIG Property Casualty Group (BestWire, July 16, 2009).

Other companies include AIG Star, AIG Edison, American General Finance Inc., Nan Shan Life Insurance Co. Ltd., United Guaranty Corp. and International Lease Finance Corp.

Also included are member companies of AIG's Domestic Life and Domestic Retirement Services business lines, including AIG Life Insurance Co., American General Assurance Co., AIG Annuity Insurance Co. and AIG SunAmerica Inc.

AIG was saved from bankruptcy in September by a federal bailout plan that has grown to up to $182.5 billion. A federal oversight panel reported that as of July 2, AIG has received a total of $170 billion in loans and other aid under the rescue plan (BestWire, July 15, 2009).

After the initial bailout plan was implemented in September, AIG said it would sell all or minority interests in its high-profile international life businesses, including Alico, AIA, AIG Star and AIG Edison. But the company acknowledged that the worldwide economic downturn, combined with the "size and complexity" of its businesses, hampered those plans (BestWire, Dec. 11, 2008).

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

Shares of AIG (NYSE: AIG) were $13.46 in afternoon trading on July 20, down 0.4% from the previous close.

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