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INSURANCE GIANT AIG TO SELL UK OPERATIONS

AIG will sell their UK operations

Sunday October 5,2008

By Geoff Ho and Emma Vickers

Beleaguered insurance giant AIG is to dispose of its UK operations, putting the future of 3,000 British jobs in doubt. The move is part of a fire sale intended to rebuild its battered balance sheet.

Credit crunch victim AIG, which sponsors Manchester United Football Club, was saved from bankruptcy in mid-September when the US government gave it a $85billion (£48.1billion) loan.

So far AIG has had to use $61billion of the loan and chief executive Ed Liddy fears the firm may need further assistance, stoking fears its financial crisis will continue. “I expect our borrowings from the Federal government to go up,” he said.

On Friday, AIG said it would repay that loan by holding a fire sale. The Financial Sunday Express has learnt this includes the UK operations — a life and pensions business, an investment management division and a kidnap, ransom and extortion insurance division. The UK operations are based in the City and Croydon, Surrey.

Bidders for the UK and European operations are tipped to include rival insurers Axa, Zurich, Munich Re and HSBC.

AIG was one of the largest casualties of the credit crunch which has also claimed Lehman Brothers and Bradford & Bingley.

On Friday, the US government finally enacted legislation to set up a $700billion “bad bank” which it hopes will prevent further failures.

However, concerns are growing about the Icelandic banks Kaupthing and Landsbanki as the Icelandic economy deteriorates.

Fears about Kaupthing’s future have already resulted in many in the City ceasing to do business with it. Investment groups Martin Currie and Man Group have deemed Kaupthing as an “unacceptable risk”.

Although neither are household names, Kaupthing and Landsbanki have many UK links.

Kaupthing helped Sports Direct founder Mike Ashley buy Newcastle United football club, while Lands-banki assisted Icelandic investment house Baugur in snapping up chunks of the High Street.

Fears that Baugur is exposed to the crisis in the Icelandic banking system has led Euler Hermes — one of the UK’s biggest credit insurers — to notify Baugur it is reviewing the supplier cover it provides to the retailers in its portfolio.

A spokesman for Baugur, which owns stakes in Karen Millen, Oasis and House of Fraser, said: “We believe the action has been taken due to a misunderstanding of the economic situation in Iceland and are confident a solution can be found.”

The Belgian operations of Fortis could be nationalised or sold to another bank. Potential private sector buyers include BNP Paribas.