Posted on 17 Jan 2011
Ending the central bank's involvement in the affairs of the giant insurer and positioning it to begin exiting U.S. ownership in the coming months, American International Group Inc. (AIG) repaid all its obligations to the Federal Reserve Bank of New York on Friday.
As part of the closing of AIG's "recapitalization" agreement on Friday, the New York Fed received $47 billion from AIG and terminated the credit line it first provided the company in its September 2008 bailout.
Of the sum repaid, $27 billion came from proceeds of AIG's recent asset sales, while $20 billion was drawn from the Treasury Department, which is expected to recoup that money when AIG completes sales of other assets that it has earmarked as noncore.
Treasury separately exchanged $49 billion in preferred shares in AIG for common shares representing a 92.1% ownership stake that it intends to sell down over time. If Treasury can sell its AIG shares above $28.70 apiece, it stands to reap a profit on its AIG investment.
Also this week, the company and Treasury intend to name one or more Wall Street banks as lead underwriters of their first stock offering in March or May, according to people familiar with the matter. The sale has been touted by bankers as the "Re-IPO" of AIG, so called because it will be a large offering that will mark the reintroduction of the restructured company to the stock market after an absence of over two years.
"Today truly marks a new beginning," AIG Chief Executive Robert Benmosche said in a statement. "We recognize that we have to stand on our own and meet the expectations of the marketplace."
Mr. Benmosche, who was in Washington on Friday and had lunch with Treasury Secretary Timothy Geithner, said in an interview that AIG is still a large, diversified insurance company after selling most of its overseas life insurance businesses to repay taxpayers. "Our performance has improved, we've pulled out of the crisis, and you will see AIG continue to grow as it did before," Mr. Benmosche said.
He also responded to recent criticism from AIG's former CEO Maurice R. "Hank" Greenberg that the firm was weaker after selling off its crown-jewel assets.
"We sold off businesses where we could get the highest amount of money, but we did not sell off all the great parts of AIG," Mr. Benmosche said. "We think we have a very strong and investable company." AIG's core businesses now include a global property and casualty insurer and a U.S.life-insurance and retirement-services business.
It could be at least another year or two before U.S. taxpayers recover all the funds that were deployed in the AIG bailout. As of Friday, roughly $94 billion in federal assistance remained outstanding, down from over $120 billion previously. The $94 billion figure includes $26 billion that the New York Fed used to buy mortgage securities that had caused AIG to bleed cash, which is to be recouped from the securities themselves.
The Fed first bailed out the insurer in September 2008 with an $85 billion loan, which was reduced and restructured several times as some of the company's obligations were shifted to the U.S. Treasury. As AIG's largest creditor for the last two-plus years, the New York Fed was deeply involved in the company's restructuring, with officials attending the company's board meetings and receiving regular updates on its plans.
The New York Fed also led a controversial plan in late 2008 to help AIG cancel over $60 billion in mortgage derivatives with U.S. and European banks by paying the banks in full for their contracts with AIG. The regional Fed bank still has to recoup about $26 billion from loans it provided in 2008 to purchase mortgage securities previously linked to AIG. The insurer isn't on the hook for that money, as the securities are now on the Fed's balance sheet.
In a statement Friday, New York Fed president William Dudley said the repayment by AIG "concludes an important effort by the Federal Reserve to stabilize the financial system in order to protect the U.S. economy."
Treasury said Friday that it expects to exit its AIG investments over time, "subject to market conditions." Mr. Geithner said in a statement that the government "remains optimistic that taxpayers will get back every dollar of their investment in AIG.