Make us your home page

AIG finalizes plan to pay back billions from taxpayer bailout

WASHINGTON — The Treasury Department and American International Group have finalized a deal aimed at restoring the troubled insurance giant to independence and repaying the massive taxpayer investment that rescued the company two years ago.

"This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers, and we thank the American people for their support," AIG chief executive Robert Benmosche said in a statement. "With this plan under way, we can concentrate our full attention on managing our businesses for the benefit of all of our stakeholders."

The plan that AIG detailed Thursday would consist of several parts.

Most significantly, the U.S. Treasury would swap its more than $49 billion of preferred shares in the company into about 1.7 billion shares of AIG common stock, the company said. The deal will leave the federal government with a 92.1 percent ownership stake in AIG.

The Treasury expects to sell those shares to investors over time, meaning that AIG's stock price ultimately will determine how quickly the government can extract itself from the company and how much of the massive taxpayer investment it can recoup.

The government largely nationalized AIG in September 2008, when the Federal Reserve Bank of New York extended an $85 billion emergency loan and took an 80 percent stake in the company. The recent collapse of Lehman Brothers investment bank had left markets reeling, and AIG was teetering on the edge of bankruptcy, largely due to a troubled portfolio of exotic financial derivatives written by a subsidiary. That bailout eventually grew to a taxpayer commitment of more than $180 billion dollars, though the company's actual tab has continued to decrease over the past year.

"The exit strategy announced today dramatically accelerates the time line for AIG's repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company," Treasury Secretary Timothy Geithner said. "While there is a lot of work ahead to execute the terms of this agreement, today we are much closer to seeing a clear path out."

The notion of transferring Treasury's preferred AIG stake into common shares and selling them over time isn't unprecedented. The government took a similar approach with a portion of its stake in Citigroup last year.

If successful, the approach could represent a triumph for the company and the government. The strategy depends heavily on AIG's ability to convince investors that it can operate as a viable insurance company.

Before the Treasury transaction takes place, possibly in the first quarter of 2011, AIG intends to first satisfy more than $20 billion in outstanding loans from the New York Fed by completing the $15 billion sale of American Life Insurance Co., or Alico, to MetLife and undertaking a public offering of shares in Asia-based American International Assurance.

In addition, the New York Fed currently has a $26 billion stake in two "special purpose vehicles" that hold equity from Alico and AIA. Under the plan laid out Thursday by AIG, the company would draw down $22 billion of funds from the government's bank bailout program to essentially buy out the Fed's stake. AIG would then immediately transfer those interests back to the Treasury, in addition to apply proceeds from future asset sales to pay off any remaining debt to the Fed.

The company announced two such sales Thursday, saying it would sell two Japanese insurance units for a $4.8 billion.

AIG finalizes plan to pay back billions from taxpayer bailout 09/30/10 [Last modified: Thursday, September 30, 2010 10:13pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.

Join the discussion: Click to view comments, add yours

  1. Nearly 1 in 4 Tampa Bay homeowners considered equity rich

    Real Estate

    If your home is worth at least 50 percent more than you owe, you're rich — equity rich that is.

    About one in four Tampa Bay homeowners are considered "equity rich." [Associated Press file photo]
  2. The FHP trooper behind quota on speeding tickets will retire Sept. 5

    State Roundup

    TALLAHASSEE — A Florida Highway Patrol official's call for troopers to meet ticket quotas has cost him his job.

    Major Mark D. Welch, Troop Commander of Troop H, wrote an email asking his employees that he wants them to write two citations each hour. "This is not a quota," he wrote. His resignation is effective Sept. 5. [Florida Highway Patrol]
  3. Trump shuts down CEO advisory councils as main group acts to disband


    President Donald Trump's main council of top corporate leaders disbanded on Wednesday following the president's controversial remarks in which he equated white nationalist hate groups with the protesters opposing them. Soon after, the president announced on Twitter that he would end his executive councils, "rather than …

    President Donald Trump meets with Merck's chief executive, Kenneth Frazier, second from left, and other leaders of the pharmaceutical industry in the Roosevelt Room of the White House last January. On Wednesday, Trump's main council of top corporate leaders disbanded following the president's controversial remarks in which he equated white nationalist hate groups with the protesters opposing them.
[New York Times file photo]
  4. A long-awaited vision for Tampa's Westshore Marina District

    Real Estate

    TAMPA —Eleven years after plans to develop a waterfront tract on the Tampa side of the Gandy Bridge were first announced, a new rendering gives a hint of what Westshore Marina District ultimately will look like.

    Rendering of Marina Pointe, a condo project overlooking Tampa Bay as part of the Westshore Marina District. [Courtesy of Masterfile Corp.}
  5. Buddy Brew Coffee to open downtown Tampa location


    TAMPA — Buddy Brew Coffee plans to open a new location in downtown Tampa at Park Tower in early 2018. The specialty coffee craft roaster, which was founded in 2010, has five other locations throughout Tampa including the Oxford Exchange, Sarasota, Hyde Park Village and Terminal F inside the Tampa International …

    A cappuccino is displayed at Buddy Brew in Tampa in January 2017. [CHARLIE KAIJO | Times]