American International Group has decided to sell 80% stake of its non-profitable consumer-lending business to Fortress Investment Group. In this way, the Company will be able to cope up with $1.7 billion losses and $17 billion debt.
Robert Benmosche, AIG's Chief Executive, says that this step will help in refunding insurance Company's $182.3 billion bailout amount.
It is noteworthy that shares of American General Finance Inc. went down to a significant rate in the last 2 years when rumours floated that Fortress Investment Group may come to AIG's rescue by refinancing its debt amount.
According to Trace, the Financial Regulatory body, AIG's $3 billion of 6.9% notes came down from 6.5 cents to 83.5 cents on per dollar.
Industry analysts, Mark Rouck and Julie Burke say that main aim of this takeover will be to refurbish the organization and streamlining the Company's financial resources.
Jason Brady, Managing Director of Thornburg Investment Management, states that shareholders are hoping that AIG will hand over its unit to any bank or insurance Company instead of any other Company that will ask its investors to lower the amount of investment.
Brady said, "You'd certainly rather have the franchise bought by a strategic buyer rather than a financial buyer".
He further stated that the current situation is not at all in favour of the shareholders.
Many financial firms are closing down their consumer-lending units as financial backing is too low to run the business.