AIG reaches deal to repay government

Thursday, September 30, 2010 | 12:53 p.m. CDT

NEW YORK — AIG, which became a lightning rod for criticism over government bailouts, said it reached a deal to repay billions of dollars it received during the credit crisis.

The plan announced Thursday could return a profit to taxpayers who footed the bill for AIG's near collapse in September 2008.

"This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers," Robert Benmosche, AIG's CEO said in a statement. "We are very pleased that this agreement vastly simplifies current government support of AIG."

The announcement provides a clearer strategy to repay AIG's debt to the government. Until this point, AIG was primarily repaying the government as it took in money from asset sales, but there was no timeline for repayment.

New York-based American International Group Inc. was one of the hardest hit financial companies by the credit crisis and received the largest bailout the government doled out. It received a bailout package worth as much as $180 billion from the government, which received an 80 percent stake in the company in return.

The insurance giant was not undone by its traditional business, but instead for dealing in the complex derivatives and securities market that got so many financial companies into trouble.

AIG also received considerable criticism because it continued to pay out bonuses to employees after it received the bailout, including employees who worked in the division that nearly destroyed the company.

The government stepped in to rescue AIG because the insurer worked with hundreds of financial institutions throughout the world. The government believed at the time that a collapse of AIG would further hurt the already fragile credit markets, which had been shaken by the bankruptcy of Lehman Brothers.

As part of AIG's exit plan, the U.S. Treasury Department will swap preferred shares it currently holds in AIG for common stock and then sell those shares over time. AIG will also repay loans it received from the Federal Reserve Bank of New York as part of the deal.

As of June 30, AIG still had $132.1 billion in outstanding aid from the government, including $49.1 billion in loans from the Treasury Department. The new shares will give the Treasury a 92.1 percent stake in AIG before it begins selling shares.

In Washington, Treasury Secretary Timothy Geithner praised the agreement that was reached.

"The exit strategy announced today dramatically accelerates the timeline for AIG's repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company," Geithner said in a statement.

The government will receive about 1.66 billion shares of AIG common stock in exchange for the $49.1 billion in preferred shares it holds in AIG. Those preferred shares were issued through the government's Troubled Asset Relief Program, which was launched to provide $700 billion to financial companies during the credit crisis.

The conversion price of the government's shares is equal to about $29.67 a share.

AIG shares rose $2.04, or 5.5 percent, to $39.49 in morning trading. So if the government is able to sell shares at the current trading price, it will make $16.25 billion in profit.

The government could still lose money elsewhere. As part of the bailout, the government took over some of AIG's risky investments, and is exposed to potential losses related to them.

To alleviate concerns about the government flooding the market with new shares of AIG, the insurer will issue 75 million warrants to current common shareholders that will allow them to buy new stock for $45 per share.

AIG owes the Federal Reserve Bank of New York about $20 billion. It plans to repay that debt, in part, through earnings it generates and the sale of some its subsidiaries. AIG has been selling some of its units since it received the initial bailout in September 2008. It is in the process of selling American Life Insurance Co. to MetLife Inc. and spinning off American International Assurance Co. into a new company. Those two moves will help cover a large portion of the money AIG owes the Federal Reserve bank of New York.

AIG said in a separate statement Thursday that it reached a deal to sell two Japanese life insurance units to Prudential Financial Inc. for about $4.2 billion in cash. That money will also going toward repaying the government bailout.

Like what you see here? Become a member.

Show Me the Errors (What's this?)

Report corrections or additions here. Leave comments below here.

You must be logged in to participate in the Show Me the Errors contest.


Rhonda Houston February 26, 2011 | 12:10 a.m.

You will have to excuse my pessimistic view on this article concerning this 'grand plan' for AIG to 'repay their debt to the middle class' government. Especially since Mr. Geithner was the one who had been so heavily involved in the original play that took place against the middle class, and initial involvement for the original scam, that has already taken place with so much of the middle class' money, which he and others, of the many CEO that received those 'big' bonus, while so many families lost their homes and so many other money related businesses collapsed. Nor am I swallowing this news article 'hook, line, and sinker' which is supposed to place 'false' hopes in the middle class hearts and minds that 'things will get better' because AIG may be assisting to recoup some of their money back to the middle class' government, from which they had no say to whom their money went...for the governmental bail out. Actually, in case you weren't aware of it, Geithner was one of those who were directly incharge of this governmental collasping affair, and I know that Geithner has a personal, large stake money-wise in MetLife, so to hear that it is with him, that MetLife and American Life are becoming a new company leaves me cold and unimpressed. My initial feeling is 'what else is enstore' for the middle class now?? My question concerning this 'grand pivotal milestone' is that it is just talk, GRAND TALK and it makes me wonder what exactly is instore for those of us very well below the corporate ladder monetarily later on once Geithner gains our confidence?? 'What's in it for Geithner and for the rest of his corporate rich and governmental cronies concerning this grand movement of two companies that orginially failed?? Incase, you weren't aware of it, Geithner has a great stake in this corporation MetLife and was a 'driving source for all the grand bailouts to which the middle class' money went. I see this article as just 'propaganda' to regain an 'up lifted facelift' for Geithner with the middle class, so he can again, gain more money from the low and middle class' expense, presented in a more elevated manner, which 'will appear' to be 'a more legitimate way' to steal more money from the poor and the middle class again. I also see it would be to Geithner's favor to be viewed as 'redeemable in our eyes' which would create the illusion of being the middle class's 'savior' in regards as to 'their money being returned', that was lost with the 'great financial stealing that has already taken place. This is all propaganda to redeem oneself and then to STEAL MORE MONEY from those he orginially stole from before; Just because someone owes money, especially those with money, when did anyone with any power 'give anything back' without a motive to make more?? rfhouston

(Report Comment)

Leave a comment

Speak up and join the conversation! Make sure to follow the guidelines outlined below and register with our site. You must be logged in to comment. (Our full comment policy is here.)

  • Don't use obscene, profane or vulgar language.
  • Don't use language that makes personal attacks on fellow commenters or discriminates based on race, religion, gender or ethnicity.
  • Use your real first and last name when registering on the website. It will be published with every comment. (Read why we ask for that here.)
  • Don’t solicit or promote businesses.

We are not able to monitor every comment that comes through. If you see something objectionable, please click the "Report comment" link.

You must be logged in to comment.

Forget your password?

Don't have an account? Register here.