Plan is reached to end taxpayers' role in AIG

NEW YORK - The government and AIG, the giant insurer rescued with $182 billion in federal funds at the depths of the 2008 financial meltdown, announced a plan Friday to end taxpayer involvement in the company within two years.

As part of the plan, AIG paid back its $21 billion outstanding balance to the New York branch of the Federal Reserve. The Treasury Department swapped its preferred stock in AIG for common stock, giving the government a 92 percent stake in the company. The Treasury will begin unloading that stock on the open market in March.

"Treasury remains optimistic that taxpayers will get back every dollar of their investment in AIG," Treasury Secretary Timothy Geithner said in a statement.

In a separate statement, AIG's president and chief executive officer, Robert H. Benmosche, said: "Today, AIG, with the support of countless people, has accomplished a huge goal that many people once thought impossible: completely repaying the Federal Reserve Bank of New York. . . . We have to stand on our own and meet the expectations of the marketplace."

The insurer will "demonstrate through our actions going forward that we are worthy of investor confidence," he said.

The rescue package for American International Group Inc., which included loans and guarantees, was the largest of any U.S. company that accepted government help during the financial crisis that began in September 2008. The firm was unable to meet obligations on contracts that protected banks against losses on investments tied to subprime mortgages. The bailout was revised at least four times to make more funds available, lower interest payments, and give the company additional time to sell assets.

At the time, federal officials worried that a collapse of AIG, which worked with hundreds of financial institutions around the world, would be a death blow to credit markets and possibly bring down the financial system itself.

The insurer became a touchstone for public outrage over excessive risk on Wall Street.

Under the plan announced Friday, the government will sell its stock over two years as market conditions allow.

The government holds roughly 1.67 billion shares of AIG now. Those shares were handed over to taxpayers at a value of just under $30 apiece and closed Friday at $54, down $3.19.

The two-year unwinding of the federal stake in the company is similar to an arrangement to end government involvement in General Motors Co., which returned to the stock market in 2010 after going through bankruptcy, and in Citigroup Inc.

The Treasury sold $10.5 billion of Citigroup Inc. shares Dec. 6 and received $13.6 billion from a November offering of GM stock.

AIG's repayment plan is being paid for with proceeds from a series of asset sales. On Thursday it agreed to sell its nearly full ownership in the third-largest insurance company in Taiwan for about $2.2 billion.

Last year, it sold an Asian life insurer for $35.5 billion. Besides repaying the U.S. government, AIG is restructuring itself to focus on its property, casualty, and life-insurance businesses and retirement services.