AIG repays Federal bailout

12:53, January 15, 2011      

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American International Group Inc. (AIG) announced on Friday that it had completed a recapitalization announced on Sept. 30, 2010, repaid the U.S. Federal Reserve's loans and converted the Treasury Department's preferred stake into common stocks, paving the way for a full exit of the government in the future.

AIG said in a statement that it has executed its previously announced recapitalization plan with the U.S. Treasury Department, the Federal Reserve Bank of New York (FRBNY), and the AIG Credit Facility Trust, including repaying in full the approximately 21 billion dollars outstanding balance under the credit facility extended by the FRBNY, and exchanging various forms of government support into common shares, resulting in the Treasury Department owning approximately 92 percent of AIG's common shares. AIG expects that over time the Treasury Department will sell its stake in AIG subject to market conditions.

"Treasury welcomes the culmination of AIG's recapitalization plan, which is a vital part of that company's turnaround and puts Treasury in an excellent position to begin realizing value for taxpayers," said Treasury Secretary Timothy F. Geithner in a statement on Friday.

Geithner added: "Treasury remains optimistic that taxpayers will get back every dollar of their investment in AIG."

Fed Chairman Ben S. Bernanke said AIG's insurance units made the bailout a safer bet than it would have been to prop up Lehman Brothers Holdings Inc., the securities firm that was allowed to fail a day before AIG's rescue.

The FRBNY also announced that with today's closing of the recapitalization, its revolving credit facility has been fully repaid, including interest and fees. As of today, AIG will no longer have any outstanding obligations to the New York Fed.

It reflects the significant progress AIG has made in reducing the scope, risk and complexity of its operations and stabilizing its operating results. The accelerated repayment of the New York Fed frees up collateral that will enable the company to access private debt markets, an essential step toward facilitating the U. S. Department of the Treasury's future sale of the common stock it owns.

"Today, AIG, with the support of countless people, has accomplished a huge goal that many people once thought impossible: completely repaying the Federal Reserve Bank of New York. Now, we will continue to focus on strong business performance for the benefit of all of our stakeholders, including our largest shareholder, the Treasury Department," said Robert H. Benmosche, AIG President and Chief Executive Officer.

According to the announcement, AIG also converted 49.1 billion dollars of outstanding preferred shares acquired by the U.S. Treasury into 1.655 billion shares of common stock.

As an important part of the payback plan, AIG has issued about 75 million warrants at 45 dollars each to its private shareholders, which will be distributed on Jan. 19 to AIG's common shareholders of record as of Jan. 13.

AIG, the New-York based insurer, was bailed out by the U.S. government after the outbreak of the global financial crisis. The government bailout totaled more than 180 billion dollars.

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