US government hopes for profit as bailed-out AIG repays more loans
Nov 1, 2010, 20:08 GMT
Washington/New York - The US government said Monday that it could yet see a profit from its massive investment in troubled US insurer American International Group (AIG), one of the companies that failed most spectacularly during the 2008 financial crisis.
The US Treasury Department made its bold prediction as AIG on Monday announced plans to pay back nearly 37 billion dollars in funds received from New York's Federal Reserve, a division of the US central bank.
The money was freed up after AIG completed a 16.2-billion-dollar sale of subsidiary American Life Insurance Co to rival MetLife. AIG also last week raised 20.5 billion dollars in a public stock offering by its Asian subsidiary AIA in Hong Kong.
'We promised the American taxpayers we would repay them,' AIG chief executive Robert Benmosche said in a statement. The two cash infusions 'move us closer to delivering on our promise.'
AIG and the Treasury also announced other moves to restructure the insurer's remaining debts. AIG owed the US government 180 billion dollars at the height of the 2008 financial crisis, and still owes about 120 billion dollars to the Treasury and New York Fed.
The insurer launched a major restructuring effort on September 30 to pull itself out from under billions of dollars in debts incurred through bad loans in the US mortgage market, which collapsed in the run-up to the financial crisis.
The latest actions mean AIG will have repayed most of the emergency funds owed the New York Fed. The Treasury will own more than 90 per cent of AIG's stock, but said it was confident it can sell that stake back to investors over time at a profit.
The US government 'expects to earn a profit on its loans to and investments in AIG, assuming the restructuring announced on September 30 is completed,' the Treasury said in a statement.
But there remains a lot of uncertainty. The Treasury's pledge is based on an assumption that it can get nearly 70 billion dollars from its stock holdings.
AIG's restructuring meanwhile is in the hands of Benmosche, who is afflicted with cancer but has said he will remain the company's CEO for the time being.
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