How Did AIG Survive the Scandal and Continue as a Going Concern?
American International Group (AIG) faced significant challenges during the financial crisis of 2008, primarily due to its involvement in risky financial products like credit default swaps. The scandal surrounding AIG involved accusations of accounting fraud and mismanagement, leading to a severe loss of confidence among investors and the public.
Government Intervention
The U.S. government stepped in with a substantial bailout package totaling about 182 billion. This included loans, equity investments, and guarantees that helped stabilize AIG and prevent its collapse. The Federal Reserve's support was crucial in providing liquidity to the company.
Asset Sales
AIG undertook a series of asset sales to raise capital and pay down its debts. This included divesting non-core businesses and subsidiaries, which helped to strengthen its balance sheet and focus on its core insurance operations.
Restructuring Efforts
AIG implemented a comprehensive restructuring plan to improve its operations and governance. This involved changes in leadership, enhanced risk management practices, and a focus on transparency to regain the trust of investors and regulators.
Rebuilding Reputation
The company worked on rebuilding its reputation by enhancing its corporate governance and compliance measures. AIG aimed to restore confidence among stakeholders, including customers, investors, and regulators.
Return to Profitability
Over the years following the bailout, AIG managed to return to profitability through improved operational efficiency and a rebound in the insurance market. This allowed the company to repay the government bailout and eventually emerge as a stable entity.
Focus on Core Insurance Business
AIG refocused its efforts on its core insurance business, which had been profitable, and divested from riskier financial products that had led to its downfall.
Through these measures, AIG was able to navigate the aftermath of the scandal and the financial crisis, ultimately emerging as a viable company in the insurance industry. The ability to adapt and make strategic changes was crucial in achieving this outcome.
As we look at AIG's journey, it is clear that the combination of government intervention, asset sales, restructuring, and a shift in focus to core operations played a vital role in its survival and continued success in the insurance sector.