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AIG poised to repay $36.7 billion in bailout money

The company's initial public offering of Asian unit AIA raised $20.5 billion in cash, while the sale of Alico to MetLife brought in $16.2 billion, the Treasury Department says.

November 01, 2010|By Alistair Barr

Reporting from San Francisco — The U.S. government said Monday that it expects to make a profit on its massive bailout of American International Group Inc., assuming the insurer's restructuring plans are completed.

The initial public offering of AIG's Asian insurance business, American International Assurance Group, raised $20.5 billion in cash, while the sale to MetLife Inc. of American Life Insurance Co., another Asian unit, raised $16.2 billion, of which $7.2 billion is cash, the Treasury Department said in a statement.

This $36.7 billion will be used to repay a loan that AIG got from the Federal Reserve Bank of New York and pay off a lot of the New York Fed's preferred interests in certain AIG subsidiaries.

The government committed more than $100 billion to save AIG from bankruptcy in 2008. Since then, the insurer has been trying to sell assets to raise the money needed to repay taxpayers.

In recent months, AIG's efforts have gained momentum. At the end of September, the company unveiled what it hopes is a final plan to extricate itself from the government's grasp.

The AIA initial public offering and the sale of the unit known as Alico were the most important parts of the plan because they had the potential to inject a lot of cash in the process. AIA debuted on the Hong Kong stock market last week, and MetLife's purchase of Alico closed Monday.

"We promised the American taxpayers we would repay them, and the initial public offering of AIA last week and the completion of the Alico transaction move us closer to delivering on our promise," AIG Chief Executive Robert Benmosche said in a statement Monday.

"These transactions will generate sufficient cash to allow AIG to pay off the [New York Fed's] credit facility, marking a major milestone in our commitment to repay the American taxpayers," he added.

AIG still owns a big chunk of AIA, and it got a lot of MetLife stock in the Alico deal. These assets are held by special-purpose vehicles controlled by the New York Fed.

AIG will draw as much as $22 billion from the Treasury Department's Troubled Asset Relief Program, or TARP, and use that money to buy the New York Fed's stakes in these special-purpose vehicles.

The Treasury said Monday that the value of assets in the special-purpose vehicles "significantly" exceeds the New York Fed's stake. That means no losses are expected when the Treasury Department takes over the vehicles.

The department has an additional $47.5 billion of cash invested in AIG. If AIG's exit plan is completed in early 2011, Treasury the department will end up with 92.1% of AIG's common stock.

Based on Friday's closing price, that stake is worth roughly $69.5 billion, which "significantly exceeds" Treasury's the agency's $47.5 billion cash investment, the government said.

The New York Fed also lent more than $30 billion to other special-purpose vehicles that hold mortgage-related securities and other assets that AIG either guaranteed or invested in before the financial crisis. The vehicles are called Maiden Lane II and Maiden Lane III, and AIG currently owes $13.5 billion and $14.3 billion, respectively, on these.

The fair value of the assets supporting Maiden Lane II is $16.5 billion, so the New York Fed expects its loan to this vehicle will be repaid in full. The fair value of the assets supporting Maiden Lane III is $23.5 billion, and the New York Fed's loan to this vehicle will also probably be repaid in full, the Treasury Department said.

Barr writes for MarketWatch.com/McClatchy.

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