Bailed-out US insurance giant AIG said Tuesday it had agreed to provide an equity stake in two subsidiaries to the Federal Reserve in a move to cut its debt to the central bank by 25 billion dollars.
American International Group said it had transferred ownership to the Federal Reserve Bank of New York parts of two international subsidiaries:
American Life Insurance Company (ALICO) and American International Assurance Company (AIA).
The action reduces AIG’s outstanding principal balance to the Fed to 17 billion dollars, excluding interest and fees.
AIG’s overall debt to the US government remains higher, including a separate line of credit from the US Treasury.
In September, congressional auditors said the company needed to repay nearly 121 billion dollars in taxpayer aid.
AIG agreed to transfer the holdings to two special entities in which the central bank will hold a stake, allowing the insurer to move forward on a spinoff or sale of the subsidiaries.
Robert Benmosche, AIG chief executive: “Today’s announcement that we have reduced our debt to the Federal Reserve Bank of New York by 25 billion dollars sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back,”
“Moreover, these transactions position AIA and ALICO, two terrific, unique international life insurance businesses, for the future.”
AIG was the largest single recipient of US bailouts amid the global financial crisis, with the government pumping more than 170 billion dollars into the firm to keep it afloat and taking a controlling stake in the group in the process.
Once the world’s biggest insurer, AIG was on the brink of bankruptcy in September 2008 when the government offered a financial lifeline in exchange for an 80 percent stake in the company.
The company was in trouble after backing trillions of dollars in risky financial products amid a US home mortgage meltdown that triggered the global financial meltdown.
With the government effectively in control, AIG has been moving to sell off a number of assets in an effort to restore its financial health. AIG has sold some 5.6 billion dollars’ worth of assets so far this year.
“We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities,” Benmosche said.
AIG said the swap was positioning ALICO for an initial public offering or third-party sale, depending on market conditions and approval.
“This action underscores ALICO’s move toward independence and complements the substantial progress we have achieved this year in repositioning ALICO and reinvigorating the brand in all markets,” said Rodney Martin, ALICO chairman and chief executive.
AIG shares rallied 8.59 percent to close at 30.84 dollars.
John Carney, analyst at the financial website Clusterstock, said the latest action did nothing to reduce AIG’s liability to the government.
“As it turns out AIG has reduced its debt to taxpayers without paying back a dime of the money it borrowed,” he said. “Instead, it is just engaging in accounting chicanery to transfer the obligations to a pair of companies it is spinning off.”
