AIG Stronger Thanks to Government Aid, Says GAO

Source: AP

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Posted on 21 Jan 2011

Taxpayers might be repaid in full for the bailout of insurance giant American International Group Inc (AIG), according to government auditors.

The Government Accountability Office said in a report issued Thursday that the final cost of the rescue depends increasingly on the strength of AIG's business and its stock price. That's because much the government's investment has been converted into common shares in the company. The government expects to sell the shares over the next two years to recoup its money.

According to the report, AIG's insurance business is stronger, mostly because of the government money it received. AIG received the biggest bailout of the financial crisis, worth $182 billion.

So far, AIG has repaid only a fraction of the government money it tapped. It held $123.7 billion as of Sept. 30, down from $129.1 billion in December 2009, the report says.

The company is in the process of repaying much of that money by selling off business units and through the government's sales of its stock.
The top Treasury official charged with recouping bailout money said the AIG repayment process is going better than expected.

"We are moving closer than ever toward a day that many thought impossible just a few years ago, as taxpayers are in a strong position to recover every dollar put into AIG," Treasury Acting Assistant Secretary for Financial Stability Tim Massad said in a statement. He said AIG's restructuring has allowed it to sell off non-core divisions and focus on its insurance business.

Treasury owns about 92 percent of AIG's common shares. It plans to begin selling them in March.

Converting the government's $47.5 billion investment in preferred shares into 1.7 billion common shares means the government paid $27.82 for each share. AIG's stock closed at $43.18 on Thursday on the New York Stock Exchange. If it holds that value over the next two years, as the government unloads its shares, taxpayers would clear a profit of about $25 billion.

AIG became a symbol for lax regulation and excess risk on Wall Street during the financial crisis that crested in late 2008. The company agreed to cover losses on hundreds of billions in mortgage investments held by banks. When the investments lost value, AIG could not afford to make good on its contracts. It used billions of government money to pay the banks.