AIG Payback Time (NYSE: AIG )
After running into huge problems by selling insurance on financial assets without setting aside reserves to pay out claims, could it be possible that American International Group, Inc. (NYSE: AIG ) will pay back nearly all of the $182B bailout? That my friend is a hefty sum.
Daniel Gross has the story over at TheBigMoney.com, saying, “When you look at the financial markets as a whole, the post-crisis bailout efforts have worked out better than expected. Many of the financial market guarantees were lifted without having been used, and the Treasury is turning a profit on the central component of the TARP. But AIG has so far loomed as a gigantic rebuttal to the optimists, a symbol of everything that went wrong.
But it turns out that the efforts to prop up AIG are also working out much better than expected. AIG still owes the Fed and the Treasury a combined $127 billion. But—surprise!— AIG is paying a lot of its debts back. And there's a not too far-fetched scenario in which we come close to breaking on our reluctant investment in the company.
Here's how: The Fed in September 2008 extended an $85 billion credit line to the company. AIG paid down $40 billion of that debt when the Treasury Department injected $40 billion of taxpayer funds into the company. But even after the assist, AIG has effectively drawn down about $51 billion of that line. In March 2009, AIG turned over two of its crown jewels, AIA (Asian insurance operations) and Alico (the U.S. life insurance unit) to the Fed in exchange for converting $25 billion of that credit into preferred shares in the two subsidiaries. Once markets recovered, AIG would sell these two units and use the proceeds to pay back the Fed.
A year later, the Fed's strategy seems to have panned out. On March 1, AIG agreed to sell AIA to Prudential PLC for $35.5 billion, including $25 billion in cash. A week later, Met Life offered to purchase Alico for $15.5 billion, including $6.8 billion in cash. If both those transactions close this year, and if the stock AIG receives in payment holds up in value (two admittedly big ifs), AIG will generate about $51 billion. That's enough to pay off the Fed's $25 billion in preferred shares plus the remaining balance on the Fed's credit line by early 2011.
But, wait, there's more..." Read the rest of the story.