In another eventful week, American International Group (AIG) has dropped plans to sell all of its controversial derivatives portfolio on one side of the business and walked straight into a tax issue over the proposed $15bn sale of Alico on the other.
The investments that AIG's Financial Products unit (AIGFP) made in derivatives were at the root of the company's near-collapse in September 2008. The original plan, devised by the former chief executive Edward Liddy and the government after the insurance giant was rescued, was to sell off all the positions and close down AIGFP as soon as possible.
But the firm will instead hold on to between 15 and 25 per cent of the derivatives portfolio's original size, representing between $300bn and $500bn in notional value.
The assets could either be managed by AIG or outsourced to an external fund manager, and retaining them could help the beleaguered insurance giant survive as an independent entity and repay US taxpayers.
But the move is likely to be controversial in Washington, where AIG's reliance on derivates was greatly scrutinised after their collapse in value brought it to its knees and necessitated an $180bn bailout.
Nevertheless, AIG wants to keep up to $500bn in notional value because the positions have been de-risked and promise an upside as the markets improve.
In February 2009, Gerry Pasciucco, AIGFP's chief operating officer, said it was possible that some assets were better suited to a "run-off scenario" and may linger on the firm's books beyond 2009, but that these were expected to be few in number.
Holding on to some of the assets could reduce the pressure on AIG's asset sale strategy as it looks to pay down the remainder of its government bailout.
The news comes as AIG's largest proposed asset sale to date - the $15bn auction of its life subsidiary Alico to Metlife - hit a snag in the form of tax complications.
Uncertainty hangs over whether AIG's foreign life insurance unit will remain exempt from a 2004 US Internal Revenue Service (IRS) ruling that would restrict its ability to do business overseas.
US-domiciled Alico earns more than 80 percent of its income abroad.
The IRS ruling requires insurers to withhold US taxes on income distributed to foreign clients that hold annuities and life-insurance products - making it harder to sell insurance products into overseas markets.
According to reports, AIG and Metlife are negotiating a stock and cash transaction consisting of around $8bn in stock.
Banks including JPMorgan Chase & Co, Bank of America Corp, Deutsche Bank AG and Credit Suisse Group AG are said to be working on providing a $5bn bridge loan to MetLife to fund the deal.
Earlier this month, MetLife confirmed that it had entered into talks to buy Alico from AIG. A deal is expected imminently.
But sources told the Wall Street Journal (WSJ) that AIG is reluctant to indemnify MetLife for any potential tax liability associated with the IRS ruling.
AIG is waiting for a "private letter ruling" from the IRS to confirm its interpretation that Alico is exempt from the US tax-withholding requirement, according to the WSJ.
The first $9bn from the sale has been earmarked for the Federal Reserve Bank of New York.
However, Treasury officials told AIG not to expect special treatment from the IRS over the deal.
The news comes as Alico's vice chairman, Christopher Swift, left to join rival Hartford Financial Services Group as CFO.
Hartford's current CFO, Lizabeth Zlatkus, will become chief risk officer from 1 March.
Commenting on luring industry veteran Swift amidst the Metlife discussions, The Hartford's chairman, president and CEO Liam McGee said: "Chris's appointment is an important step on our path forward. He has held significant leadership roles in large, complex financial organisations and has a background that covers both the life and P&C industries."