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THE MUSINGS OF A TRADITIONAL SOUTHERN DEMOCRAT

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Sid in his law office where he sits when meeting with clients. Observant eyes will notice the statuette of one of Sid's favorite Democrats.

Monday, March 23, 2009

At A.I.G., the Brand Is Tarnished -- A.I.G. suggests the potential pitfalls should the government move in and forcefully take control of businesses.

From The New York Times:

The government’s fourth round of assistance to the American International Group this month was a play for time — for languishing markets to rebound, for pockets to fill up again and for buyers to emerge for the sturdy insurance companies under A.I.G.’s tattered corporate umbrella.

Only when those insurance companies are sold will there be money to repay American taxpayers.

But after the latest uproar, time does not look like A.I.G.’s friend. The problem now is not a toxic spiral of derivatives like the one that crippled the company last fall, but the damage done to A.I.G.’s brand, first by the financial troubles and then by the recent wave of hearings, subpoenas, late-night television jokes and even a bus tour past executives’ homes.

A strong brand is something no insurer can afford to put at risk. Insurance companies trade, more than anything else, on their image of strength and stability.

“Why would we do business with a company that’s constantly in the news, even if the ratings are still supposedly O.K.?” wondered Greg Theis, a financial planner with Legacy Investment Services in Homer Glen, Ill. He helps 55-to-70-year-olds select variable annuities from a bewildering array of carriers.

“If they look at the brochure and at the top it says ‘A.I.G.,’ who’s going to want to explain all that?” Mr. Theis asked. “It’s a liability. A little bit dangerous.”

The giant insurance portfolio of A.I.G. looks less like it is being salvaged by the government than being savaged, as competitors try to exploit the company’s weakness and as customers grow wary of the very name. And the result at A.I.G. suggests the potential pitfalls should the government move in, as some observers contend is necessary, and forcefully take control of businesses in an array of industries that need financing to survive, be they banks or automakers.

1 Comments:

Anonymous toronto realtor said...

It doesn't make any sense at all. The government stepped in and injected billions into the AIG system to resuscitate it. Then a few months later it comes pointing a finger at AIG (of which it owns 80% by then), damaging its poor reputation even more. There was many ways how to deal with the problem, but the government had to choose the noisiest one... sad.

Take care,
Julie

4:35 PM  

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