Treasury Expects to Earn a Profit on AIG Investment

The U.S. Department of the Treasury anticipates that it expects to earn a profit on its loans to and investment in American International Group, New York.

The prediction is based on current market prices and the value of the assets supporting the loans to and preferred interests in AIG and Maiden Lane II and III, provided by the Federal Reserve Bank of New York as well as support from the Troubled Asset Relief Program (TARP) which will pay back the Federal Reserve Bank of New York’s holdings in AIG subs and assume those assets. The prediction assumes the restructuring announced on September 30 is completed which is subject to a number of conditions.

The U.S. government maintains that the IPO of AIA Group Limited and sale of American Life Insurance Co. reflect the substantial progress that AIG and the USG have made to date in restructuring the company.

The AIA IPO raised $20.5 billion of cash proceeds. The ALICO sale raised approximately $16.2 billion of total proceeds, approximately $7.2 billion of which is cash. This approximately $36.7 billion in aggregate proceeds will be used to fully repay the loan extended to AIG by the Federal Reserve Bank of New York (FRBNY) and a substantial amount of the FRBNY's preferred interests in certain AIG subsidiaries.

As part of the restructuring, AIG will draw up to $22 billion in remaining TARP funds from Treasury to purchase the FRBNY's preferred interests in the special purpose vehicles holding AIA and ALICO, and Treasury will receive those interests. The assets held by these special purpose vehicles, which include, among others, AIG's remaining shares in AIA and the non-cash proceeds received from MetLife for ALICO, significantly exceed the amount of the preferred interests and, as such, no losses are expected on those preferred interests.

After the restructuring, Treasury will own 92.1 percent of AIG, which equates to approximately 1.66 billion shares of common stock in the company. Based on the market closing price of AIG on October 29, 2010, these shares are worth approximately $69.5 billion. This amount significantly exceeds Treasury's current $47.5 billion cash investment in AIG. (This is in addition to the Treasury investment in the preferred interests described above.)

AIG has announced that it expects to complete the restructuring by the end of the first quarter of 2011. Based on current market prices and the value of the assets supporting the FRBNY's loans to and preferred interests in AIG and Maiden Lane II and III, the USG expects to earn a profit on its loans to and investments in AIG assuming the restructuring announced on September 30 is completed.