Fed Confident AIG Will Repay Bailout Money, but Doubts Remain

Published: Thu 27 May 2010

Perry Begay

Federal regulators who oversee American International Group Inc. and its CEO tried to persuade an incredulous congressional panel that the country would recoup the record-breaking amount offered to AIG in the bailout.

Officials from the Federal Reserve said they are more and more optimistic that the government-controlled insurance company will repay the bailout money to the central bank, but their colleagues at the Treasury Department seemed less confident.

Leaders from AIG, the Fed, and the Treasury gathered on Wednesday at Capitol Hill to deliver multiple versions of the same message: The troubled insurer, which has taken over $132 billion in taxpayer assistance, is on track to pay back the bailout money.

"I'm confident you're going to get your money back plus a profit," the CEO of AIG Robert Benmosche assured the Congressional Oversight Panel. The oversight panel, which is evaluating the government's reaction to the financial crisis, was established by Congress but does not include any lawmakers.

Lingering Doubts

The chair of the panel, Elizabeth Warren, expressed frustration after the hearing at the lack of specific data offered to substantiate projections. "It was an exercise in great frustration," said Ms. Warren. The panel has promised to publish a report on the government bailout of AIG and the likelihood of repayment.

The timing and amount of repayment on AIG's two loans from the Treasury and the Federal Reserve Bank of New York are unclear. The massive insurance company recently made two deals to sell foreign life-insurance subsidiaries for $51 billion, all of which is reserved for the New York Fed.

But objections have surrounded one of those deals-the sale of AIG's biggest overseas life-insurance unit to Prudential PLC, a U.K. insurance company. RiskMetrics Group, a shareholder proxy advisory service, recommended this week that Prudential shareholders veto the deal. On Tuesday, Prudential's chairman said the "vast majority" of the company's shareholders support the deal.

The Repayment Plan

Basically, AIG must complete the sale to Prudential successfully and meet its earnings forecast for 2011 for a repayment to be possible. Regulators and some industry experts question the financial stability of the insurer and remain doubtful that AIG will be able to repay the Treasury in full.

In response to these doubts expressed by the panel, Mr. Benmosche maintained that the insurance company is "absolutely" solvent and may earn as much as eight billion dollars next year after taxes. He pointed to strong profits in the company's property and casualty business as support for his optimism.