AIG and U.S. Set Faster, Riskier Exit Path
American International Group Inc and the U.S. government agreed on Thursday agreed on a plan that would accelerate the payback of bailout money and could yield a profit for taxpayers but also increase their risk.
The plan comes a little over two years after AIG was first rescued with an aid package that ballooned to $182.3 billion. The plan allows the Federal Reserve Bank of New York to be repaid in full and ends its involvement in AIG, leaving AIG to deal with just the Treasury Department, while simplifying the bailout structure.
The Treasury will convert some of its AIG securities into common shares, raising its stake in the insurer to 92.1 percent from nearly 80 percent. That stake will be sold off over time.
The Treasury also will effectively buy out the Fed’s interest in two large AIG units that are being sold.
The plan could lead to a loss for taxpayers if the stock price falls below roughly $30, at which the Treasury will break even, or if the company fails, as common shares sit lower in the capital structure.
AIG shares closed up 4.4 percent, or $1.65, to $39.10.
“Now the debate is how much the government will make on AIG,” Chief Executive Robert Benmosche said in an interview. “Is it a billion, is it 10 billion? They are not talking about a $30 billion loss anymore.”
A senior Obama administration official said the plan could yield a profit of around $16.5 billion for taxpayers, compared to a previously estimated loss of about $45 billion.
The deal, which is expected to close by the end of the 2011 first quarter, shows the insurer is making progress in disentangling itself from the government and positions the company to tap the capital markets again.
The announcement of the plan comes as the government faces pressure to show it is extracting itself from the financial industry, which was offered more than a trillion dollars of taxpayer support in 2008.