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AIG and US Government Agree On Bailout Settlement
By Sergio | Published October 04, 2010
American International Group Inc. (AIG) has recently announced it has reached an agreement with the US Government to repay the billions of US dollars it received during the credit crisis back in September 2008. The repayment plan could even return a profit to US taxpayers.
Up until now, AIG had been repaying the US government with money taken in from the sale of its assets, and there was no clear repayment schedule. Robert Benmosche, CEO of AIG, said in a statement: “This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers. We are very pleased that this agreement vastly simplifies current government support of AIG.”
Of all the companies affected by the credit crisis, AIG was one of the hardest hit and received a bailout from the US government to the tune of approximately US$180 billion (EUR 131.2 billion), in exchange for an 80 percent stake in the company.
AIG did not get into trouble due to its traditional insurance business, but for dealing in the complex market of derivatives and securities, in which many other financial companies got into trouble. The image of AIG was further tarnished when it continued paying hefty bonuses to its employees, after having received the bailout funds, including paying bonuses to employees who worked in the division that nearly caused the total collapse of the company.
After the legendary financial institution Lehman Brothers declared bankruptcy, the US government was convinced at the time that the collapse of AIG would cause irreparable damage to the credit markets around the world, since AIG was working with hundreds of financial companies globally.
The exit strategy devised and agreed to by both AIG and the US Treasury Department, calls for the swapping of the preferred shares the latter currently holds for common stock, which will then be sold throughout time. Additionally, as part of the deal AIG will repay the loans it received from the Federal Reserve Bank of New York.
The balance of the outstanding aid AIG still had as of 30 June 2010 amounted to US$132.1 billion (EUR 96.3 billion), including US$49.1 billion (EUR 35.8 billion) in loans from the Treasury Department. As a result of the new agreement, the Treasury will hold a stake equivalent to 92.1 percent in common AIG stocks.
In a separate announcement, AIG recently said that it had reached a deal to sell two Japanese insurance units to Prudential Financial Inc. for the equivalent to US$4.2 billion (EUR 3 billion) in cash. The proceeds of this sale will also be used towards repaying the government bailout.
Insurance Company mentioned:
American International Group, Inc. (AIG) is a leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services around the world. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
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