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Its former chief executive officer, Maurice “Hank” Greenberg, says American International Group (ÌìÃÀÍøÕ¾´«Ã½´«Ã½) should renegotiate the terms of the $85 billion loan it has from the federal government or it will end up in liquidation.

In a and an accompanying letter to current ÌìÃÀÍøÕ¾´«Ã½´«Ã½ CEO Edward Liddy, Greenberg said the loan entered into last month is a “lose/lose” proposition for all parties.

At a minimum, Greenberg wrote, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ should be afforded the same borrowing terms that other companies are now getting from the government. He said the Federal Reserve has recently been lending to other financial institutions on terms “far less onerous than those imposed on ÌìÃÀÍøÕ¾´«Ã½´«Ã½.”

The current loan to ÌìÃÀÍøÕ¾´«Ã½´«Ã½ is for a two-year term and carries approximately a 14 percent annual interest rate, including a 8.5 percent annual rate whether ÌìÃÀÍøÕ¾´«Ã½´«Ã½ takes down the loan or not, plus a 2 percent one-time commitment fee. In addition, the government receives preferred stock and 79.9 percent of the ownership of ÌìÃÀÍøÕ¾´«Ã½´«Ã½.

An ÌìÃÀÍøÕ¾´«Ã½´«Ã½ spokesperson said the company would have no comment on Greenberg’s plan, but added that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ management is “open to all serious proposals that can benefit taxpayers and ÌìÃÀÍøÕ¾´«Ã½´«Ã½ shareholders.”

ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s Peter Tulupman also said the company continues to “focus on maximizing the value of our businesses and servicing our customers so we can repay the Fed loan and emerge as a vital, ongoing business.”

Greenberg maintains that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ cannot pay off the existing loan by selling off assets, nor can it pay the annual interest rate from earnings.

“The loan from the Federal government to ÌìÃÀÍøÕ¾´«Ã½´«Ã½, as it is currently structured, will result in the liquidation of ÌìÃÀÍøÕ¾´«Ã½´«Ã½, the loss of thousands of jobs, and the irretrievable loss of billions of dollars in shareholder value,” Greenberg warned in his letter to Liddy.

According to Greenberg, one of the main problems with the present loan is that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ has to pay interest on the full $85 billion amount regardless of how much it uses. According to Federal Reserve statistics released last week, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ has borrowed $70.3 billion as of Oct. 8.

Greenberg, who now heads C.V. Starr, was CEO of ÌìÃÀÍøÕ¾´«Ã½´«Ã½ until March 2005 and remains a major ÌìÃÀÍøÕ¾´«Ã½´«Ã½ shareholder. He has said he had previously offered to help the management that succeeded him at ÌìÃÀÍøÕ¾´«Ã½´«Ã½ as the crisis mounted but his efforts were ignored.

While Greenberg thinks the current loan is a “lose/lose” situation, he believes it could be “turned into a win/win situation” if the loan is changed to non-voting preferred stock, with an approximately 5 to 6 percent dividend and a 10-year right of redemption for ÌìÃÀÍøÕ¾´«Ã½´«Ã½ at a 10 percent premium.

According to Greenberg, by requiring ÌìÃÀÍøÕ¾´«Ã½´«Ã½ to pay interest on money it does not borrow, the agreement encourages the company to draw down the full amount of the loan even if it does not need the capital and in order to service the principal and interest on the loan, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ will have no choice but to engage in a fire-sale of profitable assets.

Greenberg stressed that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ has more than $1 trillion in assets, including those used as security for the $85 billion loan. “That security provides sufficient protection to American taxpayers. It is not necessary to wipe out virtually all of the shareholder value held by ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s millions of shareholders, including scores of ordinary Americans,” he wrote.

“Although time is of the essence, it is not too late to change the terms of the ÌìÃÀÍøÕ¾´«Ã½´«Ã½ deal and protect the interests of both the American taxpayer and the numerous ÌìÃÀÍøÕ¾´«Ã½´«Ã½ employees, stockholders and others that will be impacted by ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s liquidation,” he wrote to Liddy.

He argued that rating agencies should react positively to his, which could lead to the possible reduction in collateral calls, which is one of the issues burdening ÌìÃÀÍøÕ¾´«Ã½´«Ã½.

Finally, he offered that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ could sell some of its toxic securities to the new $700 billion bailout fund.

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