A.I.G. and U.S. Government Agree on Exit Plan

A.I.G. and U.S. Government Agree on Exit Plan
Copyright By THE NEW YORK TIMES
Published: September 30, 2010
http://www.nytimes.com/2010/10/01/business/01aig.html?hp


The American International Group said Thursday that it had completed a plan to repay United States taxpayers for bailing out the insurance giant during the height of the financial crisis.

Under the plan, the Federal Reserve Bank of New York would be repaid the nearly $20 billion that it is owed and the Treasury Department would convert the $49.1 billion in preferred stock that it holds into 1.66 billion common shares. Over all, A.I.G. received a bailout package of nearly $180 billion.

With the conversion, the Treasury Department will own 92.1 percent of A.I.G., the statement said. The government will then sell its stake over time on the open market. In addition, A.I.G. said it would issue up to 75 million warrants with a strike price of $45 a share to existing common shareholders.

The A.I.G. chief executive, Robert H. Benmosche, said the plan would allow the company to “remain on track to emerge with one of the largest, most diversified property and casualty companies in the world.”

The company said it expected to repay the Fed and issue the stock to the Treasury before the end of the first quarter of next year.

Timing of the share sale could be crucial to determining the actual amount of money that will be returned to taxpayers. If shares are sold too quickly, it could drive down the company’s market value and lessen the return. In addition, a rapid exit by the government could lead to a credit downgrade, which would hurt the company’s ability to sell insurance.

Separately on Thursday, A.I.G. said that it would sell two Japanese units, the Star and Edison life insurance companies, to Prudential Financial for $4.8 billion, which includes $4.2 billion in cash and $0.6 billion in debt.

A.I.G. has been selling various units to repay its bailout assistance, which as of June 30, was $132.1 billion, The Associated Press reported.

The $49.1 billion from the Treasury Department, initially in the form of loans, was part of the government’s Troubled Asset Relief Program.

While acknowledging that “there is a lot of work ahead,” Treasury Secretary Timothy F. Geithner said Thursday that A.I.G.’s exit plan put “taxpayers in a considerably stronger position to recoup” their investment.

A.I.G. had been negotiating for weeks with officials from the Federal Reserve Bank of New York and the Treasury, as well as with representatives for a trust holding A.I.G. stock that was set up on behalf of the nation’s taxpayers. Still, breaking away from the insurance giant will be complicated, in part because of A.I.G.’s fragile state and because several parties were involved in saving the company in 2008 and used different forms of assistance.