"AIG" American Intl Announces Plan to "Repay US Government

Date: 9/28/2010

AIG, U.S. agree on plan to pay back taxpayers. YOU PAY HIGHER TAXES... "American International Group" Inc. agreed with U.S. regulators to repay its bailout by converting the government's holdings into common shares for sale, a step toward independence for the insurer whose near collapse two years ago threatened the global economy.

The U.S. Treasury Department will convert its preferred stake of about $49.1 billion for 1.66 billion shares of common stock and then sell the holdings in the open market, AIG said today in a statement. Common shareholders, who hold about 20 percent of the company, will have their stake diluted to about 7.9 percent, the insurer said. Those investors will receive as many as 75 million warrants with a strike price of $45.

AIG, once the world's largest insurer, turned over a majority stake to the government in exchange for a rescue that swelled to $182.3 billion. Federal Reserve Chairman Ben S. Bernanke has said the bailout, a day after the September 2008 failure of Lehman Brothers Holdings Inc., made him "more angry" than any other episode in the financial crisis.

"The government got lucky because the markets recovered and it looks like the bailout will work," said Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore. "Economists will be debating for a long time about whether the rescue was a good thing. My concern is the next time a company starts to look iffy, it becomes a very convenient argument to jump in and say, 'We'll do another AIG.'"

The insurer advanced $1.25 or 3.3 percent, to $38.70 in early trading at 8:06 a.m. in New York. AIG gained about 25 percent in New York Stock Exchange trading this year through yesterday. It slipped 4.5 percent last year and plunged 97 percent in 2008.

'Clear Path'

AIG will retire its Federal Reserve credit line, using proceeds of asset sales, and issue the common stock to Treasury by the first quarter of next year, the New York-based insurer said. The debt on the Fed line is about $20 billion.

"This agreement vastly simplifies current government support of AIG, sets forth a clear path for AIG to repay the Federal Reserve Bank of New York in full, and sets in motion the steps for the U.S. Treasury to exit its ownership of AIG," Chief Executive Officer Robert Benmosche said in the statement. "With this plan underway, we can concentrate our full attention on managing our businesses.

"The insurer will transfer interests in special purpose vehicles holding stakes in AIG divisions to the Treasury from the Fed. AIG will tap as much as $22 billion from a Treasury facility for the transactions, which involve non-U.S. divisions American Life Insurance Co. and AIA Group Ltd.

AIG will repay the sum with proceeds from asset sales. The company has struck a deal to sell Alico to MetLife Inc. for about $15.5 billion and plans to hold a public offering for AIA.

'Systemically Significant'

AIG was deemed by the Treasury as a "systemically significant failing institution" and was the only company to receive bailout funds through a facility created for such firms. AIG had reported the biggest quarterly loss in U.S. corporate history in 2008 and posted almost $100 billion in net losses that year, fueled by bets on subprime-mortgage securities. The business was akin to a hedge fund "attached to a large and stable insurance company," Bernanke said last year.

Under Benmosche, 66, who last year became the insurer's fourth head since 2008, AIG boosted profit from property- casualty and life insurance operations and shrank the derivatives unit. The company benefited from a rebound in corporate debt holdings and investments in private-equity and hedge funds.

'Much Closer'

Treasury Secretary Timothy F. Geithner said the plan "dramatically accelerates" the timeline for AIG's repayment."While there is a lot of work ahead to execute the terms of this agreement, today we are much closer to seeing a clear path out," Geithner said in a statement today.