Financial, Accounting, Marketing and Operational Issues Facing AIG (Essay Sample)

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FINANCIAL, ACCOUNTING, MARKETING AND OPERATIONAL ISSUES FACING AIG
American International group has been the leading insurer in the world until February 2005 when its share value started going down drastically. This was caused by a certain AIG member company that oversold a type of unregulated quasi-insurance well known as credit default swaps ("CDSs”) to banks, hedge money, and other monetary institutions. It shows that the company was uninformed about these credit swaps.
Unlike the other insurance services vended by the Commercial Insurance Group and other secondary insurers, these quasi-insurance products are not synchronized by national insurance sectors or the centralized government. They made an assumption that a certain credit evasion is not likely to lead in to another default. This applies only in other forms of insurance that are state regulated and those conducted by the CIG. In this case, they did not consider the fact that economic markets are interlocked, and one credit evade tends to cause other defaults. CITATION Dam08 \l 1033 (Arguello, 2008)
When the home and credit markets caved in, the owners of mortgage-sponsored securities gained enormous losses calling upon AIG to shell out.  As AIG’s losses accumulated, its credit ratings plunged and it was obliged to position additional guarantee for its great bonds.  AIG was unable to pay its CDS requirements and its security necessities.  This was bringing AIG into failure and it was necessary for the Federal Reserve’s $ 85 bailout, in 14th September 2008. This in return outlaid a 79.9% fair play ante by the government and there was change of chairperson rapidly.
The government wants to force all of AIG’s businesses into the M&A market in order to get the Federal bailout refund as soon as possible. The big company can be sold within a few months. This will definitely lead to consolidation of its insurance market as a whole. AIG’s capitalization is down, stock values are down, credit ratings are down and therefore credit is hard to get. This normally would be a buyer’s market, but there are no buyers left. Sovereign wealth funds and private equity are not enough to do sufficient purchasing of the company.
AIG is not the first to experience these kinds of problems. Robert S. Rachofsky a financial advisor said that many companies, due to need for capital, the need to avoid downgrades and the need to do transactions like acquisitions end up looking for foreign capital, asset sales and M&A transactions. M&A transaction which is merging into another company, are not commonly done in U.S because it becomes hard for shareholders to allow them to buy shares in the company they buy to. CITATION Rob08 \t \l 1033 (Lopatin, 2008)
The company, for around five years has been producing false financial statements. Securities and Exchange Commission reported that AIG used these statements to paint a good picture to analysts and its investors. After the public knowledge of the company’s state it has now acknowle...