AIG set to repay about $37 billion of bailout

The sale of the two units fits into AIG’s previously announced plan to repay the government’s bailout in full. The repayment will include the government taking a bigger stake in the company and eventually needing to sell common stock in AIG to recoup its money, similar to what it is doing right now with Citigroup Inc. shares.

The Treasury Department said in a release yesterday that it would make money if the value of AIG’s stock and other investments remain at current prices. Market fluctuations, however, could alter whether the government’s biggest bailout during the financial crisis turns out to be profitable.

AIG shares fell 5 cents to $41.96 in afternoon trading yesterday.

New York-based American International Group was one of the financial companies hit hardest by the credit crisis and received the largest government bailout. Its bailout package enabled it to tap as much as $180 billion in aid. The government received an 80 percent stake in the company as part of the deal.

AIG closed its previously announced sale of American Life Insurance Co., or ALICO, yesterday. It sold ALICO to MetLife Inc. for $16.2 billion. The sale involves $7.2 billion in cash and $9 billion in MetLife securities.

The closing of the ALICO deal occurred just days after AIG completed an initial public offering in Hong Kong for another foreign insurance unit, AIA Group. The AIA sale raised $20.51 billion in cash.

AIG will use the cash from the two deals to repay one line of aid it received from the government during the financial crisis. The MetLife securities will be used to pay down the government debt.

AIG also plans to transfer a minority stake in AIA, which it held onto after the initial public offering, to the government as part of the payment.

The Treasury Department said in a release yesterday that the value of those investments will more than cover the portion of the bailout they are replacing.

As part of AIG’s exit plan announced Sept. 30, the Treasury Department will also swap preferred shares it currently holds in AIG for common stock and then sell those shares over time.

After that swap, which is scheduled to be completed by the end of the first quarter of 2011, the government will own 92.1 percent of AIG. Based on the current value of AIG’s stock, the government’s shares would be worth $69.65 billion. That’s well above the $47.5 billion the government paid for the preferred shares, according to the Treasury Department.

Even if the government books a profit from selling the common stock, it could still lose money elsewhere.

As part of the bailout, the government took over some of AIG’s risky investments, and is exposed to potential losses related to them.

AIG has been shedding assets and streamlining operations since it first received a bailout package two years ago. The sales of ALICO and AIA have been, by far, the biggest to date.

“We promised the American taxpayers we would repay them, and the initial public offering of AIA last week and the completion of the ALICO transaction move us closer to delivering on our promise,’’ Robert Benmosche, AIG’s chief executive officer, said in a statement.