NEW YORK (AP) — The government will wind down its largest and most complex rescue from the 2008 financial crisis, a $182 billion package to save insurer AIG, by selling stock over the next two years. The plan could net taxpayers billions in profits.
American International Group Inc. paid its $21 billion outstanding balance to the New York branch of the Federal Reserve on Friday and converted preferred stock owned by the Treasury Department into more than 1.6 billion shares of common stock that can be sold on the open market.
The common stock gives the government a 92 percent ownership stake. The Treasury Department is expected to start selling its shares in March.
Converting the government’s $47.5 billion investment in preferred shares into 1.6 billion common shares means the government paid about $30 for each share. AIG stock closed at $54 on Friday on the New York Stock Exchange. If it holds that value over the next two years, as the government unloads its shares, taxpayers would clear about $40 billion profit.
“We will work to make sure that the U.S. taxpayer will get back all of its money with a healthy profit,” AIG CEO Robert Benmosche told The Associated Press in an interview.
Treasury Secretary Timothy Geithner said in a statement that the government “remains optimistic that taxpayers will get back every dollar of their investment in AIG.”
The government came to the rescue of AIG in September 2008, at the depths of the financial meltdown. It did business with hundreds of firms around the world, and officials feared its collapse would wreck the financial system.
AIG became a symbol for excessive risk on Wall Street and a touchstone of public anger. It was criticized by some members of Congress for spending $440,000 on spa treatments for executives only days after it was bailed out.
The bailout, which included loans and federal guarantees, was the largest of a series of rescues announced during the stomach-churning weeks of the financial crisis in the fall of 2008.
Much of the $700 billion fund set up by the government to help wobbling banks, plus AIG, General Motors and Chrysler, was never disbursed. About $385 billion in cash had been handed out as of Sept. 30, according to the Government Accountability Office.
Almost $204 billion has been paid back to the government, and the fund has made $28 billion more on interest, dividends and profits on investments in companies like Citigroup. About $180 billion is outstanding, most of it with pieces of AIG, auto companies and small banks.
The Congressional Budget Office estimated in November, the fund, the Troubled Asset Relief Program, will wind up costing taxpayers $25 billion.
The government sold the last of its stake in Citigroup in December. The transaction was smaller, but similar in structure, to the unwinding of the federal stake in AIG: The government converted its investment into common stock and sold it publicly. The government owns about a third of the common stock of GM and is paring that down gradually as well.
Most of the large banks have repaid their bailout amounts in full.
AIG first announced its repayment plan in September. Since then, the company has worked to raise cash to pay back the government by selling parts of itself around the world.
On Thursday, it agreed to sell its 98 percent stake in Taiwan’s third-largest insurance company. Before that, it took Asia’s AIA Group life insurance company public, raising $20 billion. It raised $16 billion by selling American Life Insurance Co. to MetLife.
The pace at which AIG moved toward ending its government involvement surprised Kevin Ahern, a credit analyst at Standard & Poor’s, who raised the insurer’s rating from junk status to a more respectable BBB+ last month.
___
AP Economics Writers Christopher S. Rugaber and Martin Crutsinger contributed to this story from Washington.