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Fed Is Confident of AIG Payback, But Skeptics Remain

Source: WSJ


Posted on 27 May 2010

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Federal overseers of American International Group Inc. and the insurer's CEO Robert Benmoosche ought to convince a skeptical congressional panel that the U.S. would recoup the record sum extended in the AIG bailout.

Federal Reserve officials said they are increasingly confident the government-controlled insurer will repay what it owes the central bank, but their Treasury Department counterparts appeared less certain.

Officials from the Fed, the Treasury and AIG appearing on Capitol Hill Wednesday all offered variations on the same message: The embattled insurer, which has received more than $132 billion in taxpayer support, is on track to repay its government aid.

"I'm confident you're going to get your money back plus a profit," AIG CEO Robert Benmosche told the Congressional Oversight Panel. The panel, which is reviewing the government's response to the Elizabeth Warren, who chairs the panel, said after the hearing she was frustrated by the lack of detail to back up projections. "It was an exercise in great frustration," Ms. Warren said. The oversight panel has said it will release a report on the government rescue of AIG and the potential for repayment.

The timing and level of repayment on AIG's separate IOUs to the Federal Reserve Bank of New York and the Treasury remain to be seen. The giant insurer recently reached two deals to sell overseas life-insurance units for $51 billion, the proceeds of which are earmarked for the New York Fed.

But questions have swirled around one of those deals, the sale of AIG's largest foreign life-insurance business to Prudential PLC, the U.K. insurer. A shareholder proxy advisory service, RiskMetrics Group, this week recommended Prudential shareholders vote against the deal. Prudential's chairman on Tuesday said the "vast majority" of shareholders back the deal.

If the sale to Prudential falls through, AIG is expected to revive an earlier plan to sell part of the overseas unit in an initial public offering.

The New York Fed expects to recoup another $31 billion from mortgage-linked securities on its balance sheet that were previously held or insured by AIG.

Less clear is whether the Treasury will get a full return on its $49 billion investment in the insurer through the Troubled Asset Relief Program. Jim Millstein, the Treasury's chief restructuring officer, said he was encouraged by the company's progress in improving its financial condition and that "the prospects for the recovery" on the Treasury's investments have improved.

If Mr. Benmosche can meet his forecast for 2011 earnings, Mr. Millstein said, "we'll be repaid in full."

AIG'S PLEDGE: Robert Benmosche, CEO of American International Group, tells a congressional panel that the government will be repaid.

Mr. Benmosche, pressed by the panel, insisted the insurer is "absolutely" solvent and could earn as much as $8 billion after tax as soon as next year. He cited healthy profits in its core property-and-casualty business as one of the reasons for his optimism.

Mr. Benmosche said the insurer will "examine alternatives we have" to address the outstanding Treasury investment once it completes the sales of its overseas life units. Mr. Millstein said the repayment will be depend on the ability of the insurer to improve its core property-and-casualty and life-insurance businesses.

Mr. Benmosche said AIG was moving away from the behavior and practices that led to its brush with collapse at the height of the financial crisis.

"We're developing a culture that's anti-taking-extraordinary-risks," he said, singling out changes at AIG's controversial financial-products division.

Separately, on Wednesday, the U.K.'s Serious Fraud Office said it has dropped an inquiry into the U.K. operations of that division because of "insufficient evidence."

A spokesman for AIG said in a statement the company welcomed the decision: "We...continue to cooperate with other authorities on their assessment of these events as we focus on strengthening our businesses and repaying American taxpayers."financial crisis, was appointed by Congress but doesn't include lawmakers.


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