AIG IPOs raise huge conflict issues

It’s the due diligence that matters. And the bona fides of the seller. Those are two key determining items in any initial public offering. A news report advises that the U.S. government is going to launch at least two divisions of AIG onto the stock market in the form of spinoff IPOs as a way to begin to recoup some of the ~US$139 billion that U.S. taxpayers have pumped into the parent company.

The thing about offering the public shares in AIG is this: who will do the due diligence, and who will attest to the merits of the business?

Since the U.S. government owns the business, and is taking US$25 billion in pref shares in the New Cos, it isn’t clear who one complains to if you get sold a bill of goods. And whatever IPO shares you buy will be of the common version — junior to those owned by the Feds.

As for the due diligence, that falls to the investment bankers on Wall Street. The ones who buy and sell swaps and credit default derivatives amongst each other, and were prime beneficiaries of AIG’s original government bailout. Which means that it won’t be easy to find underwriters who are not already connected to AIG in a business fashion.

The silver lining may be this: if AIG can IPO some of its divisions, the global equity markets are clearly finding their footing.

MRM