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Fed says taxpayers earned $17.7 billion from AIG bailout

The New York Fed said its final sale of AIG-related securities resulted in a $6.6-billion profit, which was added to gains of about $11 billion.

August 24, 2012|By Jim Puzzanghera, Los Angeles Times

WASHINGTON — The Federal Reserve said taxpayers ended up earning $17.7 billion from the central bank's role in bailing out insurance giant American International Group Inc.

On Thursday, the Federal Reserve Bank of New York, the investment management arm of the Fed, sold the last of the asset-backed securities it acquired in the multi-step bailout of AIG, which the central bank engineered in 2008 with the Treasury Department.

The government pledged more than $182 billion to AIG in exchange for a 92% ownership stake as it stepped in to keep the company from filing for bankruptcy and possibly causing a global meltdown in financial markets.

AIG used about $125 billion of the money, and the Fed and Treasury have been working since 2011 to extricate the government from AIG.

The Treasury Department still has about $25 billion invested in AIG as it slowly sells its shares in the company. The Treasury sold about $5.75 billion in AIG stock this month, reducing the government's stake to about 53%.

The New York Fed said the final sale of its AIG-related securities resulted in a $6.6-billion profit, which was added to gains of about $11 billion from earlier sales of assets and loans that were part of the bailout.

The sale "marks the end of an important chapter … that was undertaken to stabilize the financial system in the midst of the financial crisis," New York Fed President William C. Dudley said.

"I am pleased that we were able to achieve our principal goal, which was to protect the U.S. economy from the potentially devastating effects of AIG's failure, while demonstrating sound stewardship of taxpayer interests," he said.

The Government Accountability Office said in May that taxpayers could end up making a $15.1-billion profit from the bailout. The estimate depended on how well AIG's stock performed and when the Treasury sold its remaining shares. The GAO's projection did not take into account the government's cost to subsidize AIG since 2008, which the agency did not calculate.

AIG shares rose 21 cents, or 0.6%, to $33.76 on Thursday. For the year, AIG's stock has increased 46%.

jim.puzzanghera@latimes.com

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