AMERICAN International Group (AIG) laid out a plan yesterday that sets the company on a path for an accelerated payback of taxpayer bailout money, but also increases the risk for the government.
The plan, which comes a little over two years after AIG was rescued from the brink of collapse, will see the Federal Reserve Bank of New York getting repaid in full and ending its involvement in AIG, leaving the company to deal with just the Treasury Department.
The Treasury will convert some of its AIG securities into common shares, increasing its ownership stake to 92.1 per cent from nearly 80 per cent. That stake will be sold off over time.
The Treasury will also effectively buy out the Fed’s interest in two large AIG units that are being sold.
Under the repayment plan, the Treasury will get about 1.66bn (£1.06bn) AIG common shares, worth $62bn at Wednesday’s closing share price, in exchange for the $49.1bn of AIG preferred shares it now holds. The deal is expected to close by the end of the 2011 first quarter and will give taxpayers an instant paper profit of more than $10bn, showing the insurer is making progress in disentangling itself from the government and positions the company to tap the capital markets again.
But at the same time, it increases the risk for taxpayers, as AIG draws down more of the funds authorised under the $182.3bn bailout and the government swaps preferred stock for common, which can yield a profit but also a loss if the company does not perform well.