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Treasury developing plan to recoup AIG investment

By Brady Dennis
Washington Post Staff Writer
Monday, September 27, 2010; 8:14 PM

Treasury Department officials are finalizing a plan aimed at recouping the massive taxpayer investment in American International Group and returning the bailed-out insurance giant to financial independence, according to sources familiar with the situation.

The core piece of that strategy would be for Treasury to convert its $49 billion ownership stake in the company into common stock, then sell those shares to investors during the next few years, the sources said. The sources spoke on the condition of anonymity because the plan is not final.

The pricing of those shares in part would determine how much the U.S. government would recoup from its rescue of AIG.

An announcement on the plan could come in a matter of days, though officials said certain details remain unresolved. In any case, a stock conversion most likely would not take place before 2011.

In addition, before the insurer can make good on its debt to Treasury, it must first pay down more than $20 billion it owes in loans from the Federal Reserve. The company plans to eliminate that debt when it completes the sale of its American Life Insurance Co., or Alico, and undertakes a public offering of shares in Asia-based American International Assurance.

Despite widespread skepticism that AIG can make good on its federal debts and reemerge as a viable company, company officials say they intend to do just that.

"I believe that we will pay back all that we owe the U.S. government. And I believe at the end of the day, the U.S. government will make an appropriate profit," AIG chief executive Robert Benmosche told members of the Congressional Oversight Panel in May. "I am confident you're going to get your money plus a profit."

AIG spokesman Mark Herr echoed that sentiment Monday.

"Our goal remains the same - to repay the taxpayers and position AIG over time as a strong, independent company worthy of investor confidence," Herr said.

In its most recent quarterly filing, the company said it has had discussions with Fed and Treasury officials, among others, about how best to "allow the government to exit its ownership relationship with AIG."

Converting Treasury's preferred AIG shares into common stock has long been the most likely approach for recovering much of the taxpayer funds. If successful, such an undertaking would represent a success both for the company and for the government, which pumped billions of dollars into AIG during the financial crisis. But the strategy also depends on AIG's ability to persuade investors that it can operate as a profitable insurance company in the years ahead.

"AIG has made significant progress toward being able to garner standalone market confidence, without the government's continuing support," Jim Millstein, Treasury's chief restructuring officer, told the Congressional Oversight Panel at the May hearing. "And as soon as we are confident that the stability is durable, we will move to exit the taxpayers' investments as promptly as practicable."

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