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WSJ Report: AIG in Talks to Accelerate Plan to Repay Government, Taxpayers

Posted on 14 Sep 2010

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The Wall Street Journal citing people familiar with the matter says that American International Group Inc. is talking with its government overseers to accelerate an exit plan designed to repay U.S. taxpayers in full while enabling the giant insurer to regain independence.

The plan, which would begin in the first half of 2011, would include the Treasury Department likely converting $49 billion in AIG preferred shares it holds into common shares, a move that could bring the government's ownership stake in AIG to above 90%, from 79.8% currently, the people familiar said. The common shares would then be gradually sold off to private investors, a move that would reduce U.S. ownership and potentially earn the government a profit if the shares rise in value.

Depending on, among other things, market conditions and the company's ability to convince investors it can generate consistent profits from its core insurance businesses, a successful exit from AIG for the Treasury Department would take several years and is far from certain. Those will mainly consist of a global property and casualty insurer and a U.S. life insurance and retirement services business, which AIG hopes can together produce $6 billion to $8 billion in annual earnings.

If it could be pulled off, however, an exit would be seen as a victory for the government and the company. AIG is the biggest recipient of government aid from the crisis and has been a lightning rod for critics who have questioned officials' decisions in rescuing and overseeing it.

Two years ago this week, the government rescued AIG from the brink of collapse, and more than $120 billion of taxpayer support is still outstanding, including loans from the Federal Reserve Bank of New York and $49 billion AIG received from Treasury's Troubled Asset Relief Program. Many people remain skeptical that all the money can be repaid.

Movement toward an exit strategy for Treasury, which would follow payback to the Federal Reserve, has been under way for some time but details have been scant. Analysts have widely expected the government to exchange its preferred shares in AIG into securities that can be sold to private investors, but some estimated it could take another one to three years for the process to start. Also unanswered was what the strategy would involve and how much of AIG the U.S. government would own as a result.