AIG Spins Off, Sells Units To Further Bailout Repayment

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Uncertainty continues to surround American International Group Inc., but there were indications by year-end that the company’s plans to emerge from federal ownership, albeit as a smaller entity, were beginning to take shape.

That was a major improvement from the start of 2010, when AIG said it was pumping $2.3 billion into Chartis Inc., its property/casualty unit, as the parent company reported a $10.95 billion loss for 2009. Much of AIG’s loss was attributed to accelerated amortization expense related to its Federal Reserve Bank of New York credit facility set up as part of its bailout, which began in September 2008 and totaled $182 billion.

Shortly after the Chartis infusion, matters looked brighter for AIG when it was announced that London-based Prudential P.L.C. would buy Asian life insurance unit AIA Group Ltd. for $35.5 billion, which observers said was significantly more than AIA would have fetched just several months previously.

But the AIA deal with Prudential collapsed in response to growing shareholder unrest about its price. AIG terminated the deal after rebuffing an attempt to seek new terms. Instead, AIG revived its plan to take AIA public, and raised proceeds of about $17.8 billion in an initial public offering in Hong Kong. AIG sold 7.03 billion shares, or a 58.4% stake in the company, according to a filing with the Securities and Exchange Commission.

AIG also agreed to sell American Life Insurance Co. to MetLife Inc. for $15.5 billion.

In September, AIG said it would accelerate repaying the government. The plan called for AIG to exchange more than 1.6 billion shares of its common stock for $49.1 billion worth of preferred shares held by the U.S. Treasury Department, which would temporarily leave Treasury owning more than 92.1% of AIG’s common stock. Treasury then would sell the common stock.

As part of its third-quarter report, AIG said it had raised $36.71 billion—$27.71 billion in cash–to repay the U.S. government from the ALICO sale and the AIA IPO. Even so, AIG reported a $2.4 billion quarterly loss.

Earlier this month, reports said AIG and the U.S. Treasury Department were planning a stock offering for the first half of 2011 that could see the government cut its stake in the insurer by up to 20 percentage points.

Federal assistance provided to AIG under the Troubled Asset Relief Program ultimately will cost the U.S. Treasury about $14 billion, according to a November report by the Congressional Budget Office.

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