Sunday, October 3, 2010

AIG and U.S. set faster, riskier exit path

American International Group Inc and the U.S. government agreed on Thursday agreed on a plan that would accelerate the payback of bailout money and could yield a profit for taxpayers but also increase their risk.

The plan comes a little over two years after AIG was first rescued with an aid package that ballooned to $182.3 billion. The plan allows the Federal Reserve Bank of New York to be repaid in full and ends its involvement in AIG, leaving AIG to deal with just the Treasury Department, while simplifying the bailout structure.

The Treasury will convert some of its AIG securities into common shares, raising its stake in the insurer to 92.1 percent from nearly 80 percent. That stake will be sold off over time.

The Treasury also will effectively buy out the Fed's interest in two large AIG units that are being sold.

The plan could lead to a loss for taxpayers if the stock price falls below roughly $30, at which the Treasury will break even, or if the company fails, as common shares sit lower in the capital structure.

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