American International Group, the huge insurer agreed to sell its Taiwan unit Nan Shan to an investor group led by Primus Financial (a Hong Kong based Financial services company) for $2.15 billion US. American International Group had to sell Nan Shan because they were bailed out by the U.S. government. The bailout package is worth up to $182.5 billion U.S. and in exchange, the U.S. government gets 80% ownership of the insurer. In order to repay the government aid, AIG had to sell its assets; therefore, selling Nan Shan was its only option.
Connection:
This is not a transaction that you would find in a small business, but it does relate to some of the transaction described in Chapter 2. This transaction is similar to the “purchase of land” transaction described in this chapter. During this transaction, Primus ( the company that bought Nan Shan ) would have to decrease their cash account because they had bought something. They would also have to increase their Land account (or purchase account) because of the purchase of Nan Shan. On the other hand AIG sold Nan Shan because they want to repay the government back; therefore, a possible transaction may be the decrease of AIG’s cash account and accounts payable account.
Reflection:
This was a huge and hard decision made by the American International Group. They had to sacrifice their assets (Nan Shan) in order to pay the U.S. government back. In my opinion, I think this was the right decision because in order to lower the debts owe, AIG needs to sell off some of their assets to cover their debts. Even though the cash received was small amount compare to the amount they owe, it is still better paying back a small amount instead of not paying back at all. Hopefully the economy would turn around in the future and AIG would be able to pay off its debt without selling its assets.
I also believe that this was a hard decision that American International Group had to make. I don't think they had much of a choice since the loan was so large. Even thought AIG is struggling to pay back the government, I don't think they will be paying all of it back anytime soon. The sum of $182.5 billion dollars is a huge sum of money, which many people can only dream of ever having. If AIG is to pay the whole sum, then selling Nan Shan for $2.15 billion only helped cover a measly 1%. I hope that AIG will eventually pay back the full amount, but I don't think I will be able to see it happen before I die, if there is interest on that loan.
I also hope that the American International Group is able to make a comeback in the economy. They aren't the only company that's close to bankruptcy. I think that the company could also earn more money to repay debts by laying off some of their employees. It may seem unfair to some, but if the owner and management want to keep the business running, sacrifices have to be made. One thing the company wouldn't be able to pull of is to sell its shares because no one would be willing to buy shares from a company that might declare bankruptcy.
Most of the companies in the America are facing the similar problem, which they have to sell their properties and pay off their debt to the government. However, in my opinion I don’t think this is the best solution to do for AIG and all the other company. Even though AIG is decrease its debt and have less liabilities, since it has less assets, it may not make as much profit as it did. I think the best way is to use its profit and assets and generate more income. It should pay its debt when it has the ability to pay off most of it.
I also believe that this was a hard decision that American International Group had to make. I don't think they had much of a choice since the loan was so large. Even thought AIG is struggling to pay back the government, I don't think they will be paying all of it back anytime soon. The sum of $182.5 billion dollars is a huge sum of money, which many people can only dream of ever having. If AIG is to pay the whole sum, then selling Nan Shan for $2.15 billion only helped cover a measly 1%. I hope that AIG will eventually pay back the full amount, but I don't think I will be able to see it happen before I die, if there is interest on that loan.
ReplyDeleteI also hope that the American International Group is able to make a comeback in the economy. They aren't the only company that's close to bankruptcy. I think that the company could also earn more money to repay debts by laying off some of their employees. It may seem unfair to some, but if the owner and management want to keep the business running, sacrifices have to be made. One thing the company wouldn't be able to pull of is to sell its shares because no one would be willing to buy shares from a company that might declare bankruptcy.
ReplyDeleteMost of the companies in the America are facing the similar problem, which they have to sell their properties and pay off their debt to the government. However, in my opinion I don’t think this is the best solution to do for AIG and all the other company. Even though AIG is decrease its debt and have less liabilities, since it has less assets, it may not make as much profit as it did. I think the best way is to use its profit and assets and generate more income. It should pay its debt when it has the ability to pay off most of it.
ReplyDeleteRonald Chan