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US in final chapters of AIG rescue

Treasury to start selling its shares in March; billions in profit are likely

By Pallavi Gogoi
Associated Press / January 15, 2011

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NEW YORK — The government will wind down its largest and most complex rescue from the 2008 financial crisis, a $182 billion package to save insurer AIG, by selling stock over the next two years. The plan could net taxpayers billions in profits.

American International Group paid its $21 billion outstanding balance to the New York branch of the Federal Reserve yesterday and converted preferred stock owned by the Treasury Department into more than 1.6 billion shares of common stock that can be sold on the open market.

The common stock gives the government a 92 percent ownership stake. The Treasury Department is expected to start selling its shares in March.

Converting the government’s $47.5 billion investment in preferred shares into 1.6 billion common shares means the government paid about $30 for each share. AIG stock closed at $54 yesterday. If it holds that value over the next two years, as the government unloads its shares, taxpayers would clear about $40 billion profit.

“We will work to make sure that the US taxpayer will get back all of its money with a healthy profit,’’ AIG CEO Robert Benmosche said.

Treasury Secretary Timothy Geithner said that the government “remains optimistic that taxpayers will get back every dollar of their investment in AIG.’’

The government came to the rescue of AIG in September 2008, at the depths of the financial meltdown. AIG did business with hundreds of firms around the world, and officials feared its collapse would wreck the financial system.

AIG became a symbol for excessive risk on Wall Street and a touchstone of public anger.

The bailout, which included loans and federal guarantees, was the largest of a series of rescues announced during the stomach-churning weeks of the financial crisis in the fall of 2008.