NEW YORK—If all goes according to plan, the U.S. government will begin to officially shed ownership of American International Group Inc. (AIG), by far the biggest—and one of the most controversial—bailout recipient during the 2008 financial crisis.
Insurance giant AIG this week outlined an agreement with the Federal Reserve Bank of New York to repay all of its bailout funds to the regulator, which first extended the company a lifeline in September 2008.
This becomes the latest step the New York-based insurer, which was bailed out by the Fed and the Department of Treasury in 2008 to avoid a systemic collapse of the global financial system, to repay all of its obligations and return funds to U.S. taxpayers.
In the agreement, AIG would use its proceeds from the sale of two Asian subsidiary businesses as well as its line of credit from the U.S. Treasury to pay down its loan from the Fed, which totaled around $20 billion as of last week, according to the company.
The recapitalization would in turn increase Treasury ownership from 79.9 percent to 92 percent of the company.
"Our filing today [with the Securities and Exchange Commission] that we have signed the definitive recapitalization agreement with the government marks an important step forward in our progress toward completely repaying taxpayers,” said AIG Chief Executive Officer Robert Benmosche, an industry veteran and former chief of MetLife.
“We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible,” he continued.
The insurer remains one of the last large corporations yet to fully repay its government obligations. At one point, AIG owed $182 billion to the U.S. government, after a series of bailouts.
Last month, Detroit-based automaker General Motors filed for an initial public offering of stock and drastically reduced its government ownership. Earlier in the week, the Treasury sold its remaining 2.4 billion shares of stock in banking giant Citigroup Inc. The U.S. government made a profit of $12 billion in its Citigroup investment.
The bailouts given to the private sector, part of the government’s $700 billion Trouble Asset Relief Program (TARP), were highly controversial and criticized by many lawmakers. Firms from the financial and automotive industries received government bailouts in 2008 and 2009.
AIG’s bailout remains one of the most controversial. At the height of the crisis, the company was considered a scapegoat for Wall Street's excesses during the boom years as its financial services arm underwrote billions of dollars worth of derivative contracts, or toxic financial instruments that some analysts said exacerbated the financial crisis.
In 2009, AIG was again making headlines due to millions of dollars worth of bonus payouts, many of which were unable to be shed because the bonuses were contractual obligations, and due to the nature of the bailouts, AIG was not qualified to tear the contracts in a bankruptcy proceeding.
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