NEW YORK – AIG said Monday it raised nearly $37 billion from the divestment of two foreign insurance units and will use that money to repay a government 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 Monday that it would make money if the value of AIG's stock and other investments remain at current prices. However, market fluctuations could alter whether the government's biggest bailout during the financial crisis turns out to be profitable.
AIG shares fell 9 cents to $41.92 Monday.
New York-based American International Group Inc. was one of the hardest hit financial companies by the credit crisis and received the largest bailout the government doled out. 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, on Monday. It sold ALICO to MetLife Inc. for $16.2 billion. The sale includes $7.2 billion in cash and $9 billion in MetLife securities.
The closing of the ALICO deal comes just days after AIG completed an initial public offering in Hong Kong for another foreign insurance unit, AIA Group Ltd. 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 further pay down the government debt. AIG also plans to transfer a minority stake in AIA, which it held onto after the IPO, to the government as part of the payment.
The Treasury Department said in a release Monday 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 U.S. 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 ALICO and AIA have been, by far, the biggest sales 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 CEO, said in a statement.
AIG is restructuring itself to focus on its core property casualty and life and retirement services businesses.
The insurance giant was not undone by those traditional business lines, but instead for dealing in the complex derivatives and securities market that got so many financial companies into trouble.
The government stepped in to rescue AIG in 2008 because the insurer worked with hundreds of financial institutions throughout the world. The government believed at the time that a collapse of AIG would further hurt the already fragile credit markets, which had been shaken by the bankruptcy of Lehman Brothers.