Bailout recipient AIG ends sale of Asian subsidiary to Prudential

By Howard Schneider
Washington Post Staff Writer
Thursday, June 3, 2010

Treasury Secretary Timothy F. Geithner said the collapse of a deal to sell American International Group's Asia life insurance division won't undercut chances for taxpayers to be repaid the $180 billion set aside to bail out the insurance conglomerate.

The planned $35 billion sale of AIG's American International Assurance subsidiary to Prudential had been heralded as a boon to the federal government and a sign that AIG might repay the proceeds of the 2008 federal rescue.

But after Prudential's demand of a lower price caused the deal to fall apart, Geithner said he is confident that AIG's management can secure a better deal and return even more money to the federal government.

"AIG is now free to pursue a bunch of other options to help maximize the return, reduce any risk of loss to the taxpayer," Geithner said at a Treasury Department briefing Wednesday.

AIG chief executive Robert Benmosche said in a letter to employees that "AIG is in the best shape it's been in two years," according to the Associated Press, and that the company will have "several options to consider regarding AIA -- more than we did in March."

The company had discussed the possibility of spinning off the Asia division through a public offering of stock but agreed to the Prudential sale as a faster way to partially repay the government. The bailout of AIG was the largest in a series of corporate rescues engineered by the federal government during the 2008 financial crisis, and the insurance conglomerate has been selling off many of its businesses to repay the bailout while creating a smaller, profitable enterprise.

Geithner said the management of AIG had made "impressive progress" in overhauling a company whose complicated structure, global scope and exposure to risky mortgage-backed securities made it "too big to fail." AIG recorded a first-quarter profit of $1.5 billion, compared with a record-setting 2008 loss of $99 billion.

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