AIG, private equity and venture capital

AIG: Maurice Greenberg’s piece in today’s Wall Street Journal almost provokes an attack of apoplexy. I’m not sure if I’ve read such a slanted, self-serving editorial for a long time. I’m pretty shocked by that WSJ will publish such a toss. Anyway, we all know that Big Mo controls AIG matches, both directly and through its management of CV Starr, so let’s just say we know where it comes from. When he starts with the argument of salvage incompatibility, he has somehow sewn me up. But when he continued to praise the Citigroup package while punishing the AIG deal, I couldn’t help but call a bull $ hit.

To date, the government has shown everything but a consistent approach. He did not help Lehman Brothers. But he insisted on a much-publicized and already abandoned plan to buy troubled assets. The government is also pushing for a criminal program for the American International Group (AIG), which benefits only the company’s credit default swap counterparties. He is currently buying repurchased, non-voting preference shares in some of the country’s largest banks.

The Citi deal makes sense in many ways. The government will inject $ 20 billion into the company and act as a guarantor for 90% of the $ 306 billion in losses in toxic assets. In return, the government will receive $ 27 billion in preferred stock, paying an 8% dividend and warrants, giving the government a potential stake in Citi of up to about 8%. The Citi Board should be congratulated for pushing for a deal that both preserves jobs and benefits taxpayers.

But Citi’s government strategy differs significantly from the initial response of the first companies to experience a liquidity crisis. One of these companies was AIG, the company I ran for many years.

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Maintaining the status quo will result in the loss of tens of thousands of jobs, block billions of dollars in losses for pension funds that are significant shareholders in AIG, and destroy the savings of retirees and millions of other ordinary Americans. This is not necessary for the wider economy. The offer is a loss-to-lose for all, but for AIG’s counterparties for credit default swaps, which will be targets for the new deal.

Instead, the government must apply the same principles it applies to Citigroup to create a win-win situation for AIG and its stakeholders. First and foremost, the government must provide a federal guarantee to meet the collateral requirements of AIG’s counterparties, which have absorbed most of the government funding to date.

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The goal of any federal aid must be to preserve jobs and allow private capital to take the place of government once private capital becomes available. The structure of the current deal with the AIG government makes this impossible.

The role of the government should not be to force a company to leave its business, but rather to help it stay in business so that it can continue to be a taxpayer and an employer. This requires a review of the terms of the federal government’s assistance to AIG to avoid the collapse of this company and the devastating consequences that would follow.

Hank, you gotta be kidding me. Taxpayers in the United States save the life of Citigroupand for that we can get up to 8% of the company. This is called a “punitive program” in Hank’s language for the U.S. taxpayer. In my world, when you save a company, you own ALL the capital, not 1/12 of the capital. The fact that the taxpayer receives up to 80% of the AIG – now this is starting to make sense. I agree with Big Mo’s statement that “The goal of any federal aid must be to preserve jobs and allow private capital to take the place of government once private capital becomes available.” But this has nothing to do with capital ownership after restructuring. He then draws his heart, saying: “Maintaining the status quo will result in the loss of tens of thousands of jobs, close billions of dollars in losses to pension funds that are significant shareholders in AIG, and destroy the savings of retirees and millions of other ordinary Americans. . “Well, Hank, that’s 100% for you. You have to think things through before you build a company and a culture that has pledged everything – and lost. Tell that retiree, that retiree how you fucked them up. It’s called integrity.” “This veiled call for personal rescue is both insulting and insulting. And I’m not buying it. I’m sure my colleagues in the United States aren’t taxpayers either.”

Private capital: The margarita chain of PE LP’s secondary sales interests will almost certainly accelerate. It’s one of those wrecks on slow trains that’s painful to watch. The calculation is easy to understand: the values ​​of public equity are falling, the values ​​of PE are more sticky and falling more slowly, PE as a percentage of total assets is rising to unacceptable levels, causing a wave of interest sales from PE LP. An interesting feature of this dynamic is the autocorrelation, in which PE values ​​adjust slowly regardless of the comparables available on the public market. If the industrialists have decreased by 40%, then don’t you think that the portfolio of PE investments in the industrial sector should trade well over 40% down due to illiquidity? However, this is not the way many PE funds choose to see the world. Nevertheless, the secondary market is just that – a market – and the discounts that are made on funds such as KKR and Terra Firma reflect this reality. Pensions and donations should throw things away and try to do it in parts of their base. But even at fiery selling prices, it is difficult to move the goods. In the next few months, we will see how desperate these investors are. Can we see KKR trading for 30 cents on the dollar? It’s possible. And scary.

Venture capital: Today I attended an interesting brown bag with my friends at betaworks. Much of the discussion was about funding in today’s hostile environment. Here are some moments that came out of the dialogue:

  1. Be prepared to live with your current investment union.

  2. If possible, have an investor with a deep pocket as part of your union.

  3. Increase 18-24 months of capital, no less. This can be done through a combination of raised capital plus a reduction in operating combustion.

  4. Reconstructions are becoming ugly. Investors, whether inside or out, require both a haircut from the last round of plus and a priority return on capital so that they are fully repaid before anyone else gets anything. It looks, smells and feels like being trampled. That is why having 24 months of capital in the bank is so important.

  5. In these low periods, coalitions are formed between management and new investors against old investors. This misalignment can lead to congestion and push the company to the brink.

There were many more, but these were the highest points. Even with today’s difficulties, there was still a lot of excitement about new companies and new ideas, with the confidence that the money would come to those who really deserved it. In short, there is hope.

From: Binaryoptionstradingsignals