Will AIG's Plan to Pay Back Taxpayers Work?

The insurance giant unveils its plan to chip away at $120 billion

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On Wednesday, insurance giant AIG signed a plan to payback the government for its massive $120 billion bailout. For starters, the company will take the profits from its recent sale of American Life Insurance and the public offering of AIA Group to pay down $20 billion it received as an emergency loan. The government will then sell part of its AIG stake in the first quarter of 2011. The Treasury is currently riding a successful wave of share offerings--namely with respect to bailed out firms General Motors and Citigroup. Will unloading AIG be as easy?

Under the plan, A.I.G. will essentially shift its obligations from the New York Fed to the Treasury Department, which already owns about 79.9 percent of the company. A.I.G. has raised billions of dollars by selling assets, including major international life insurance operations, to help repay the Fed loan... Treasury's holdings will rise to slightly more than 92 percent of A.I.G. The federal government will then sell its shares over time, as it did with Citigroup and is doing with General Motors.

  • The Feds Want to Mimic the Sale of Citi Group, writes Colin Barr at Fortune:
Treasury said it's early yet to talk about a stock sale, but it's easy to see where the government would be feeling good about its ability to cash out some of its investments in bailed-out companies. Take this week's $10 billion sale of the last of Treasury's Citi stake. In that case, the government was able to score a $12 billion profit on a $45 billion commitment to prop up the third-biggest U.S. bank ... There is no mystery the feds would like to, say, monetize AIG as soon as possible.

  • Some Obstacles Remain  "No banks have been hired to handle the sale itself and there are a number of hurdles to overcome first," write Tom Braithwaite, Francesco Guerrera and Helen Thomas at the Financial Times. "AIG is still working to reassure credit rating agencies and regulators that it can prosper as a normal public company. In particular, its credit rating is vital for AIG to borrow at a sustainable level."
  • The Treasury Has a Difficult Task, writes Michael De La Merced at The New York Times. The government needs to "maximiz[e]the price it can fetch while selling as many shares as possible. Shares in A.I.G. fell nearly 4 percent Wednesday, closing at $42.22. They remain above $30 a share, which is considered the government’s break-even point for the bailout."
  • Still, the Feds Are Optimistic About the Sale, writes Brady Dennis at The Washington Post, quoting a Treasury official as saying "we believe taxpayers will recover every dollar invested in AIG and stand a good chance of making a profit."
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