AIG slashes amount it owes U.S. by $25 billion

/ Source: The Associated Press

American International Group Inc. on Tuesday reduced the amount of money it owes the government by $25 billion, completing a move of two subsidiaries into special holding units ahead of their planned spinoff or sale.

The insurance giant has been selling assets and spinning off divisions in an effort to help repay a government bailout package received last year when it was on the brink of collapse.

AIG moved American International Assurance Co. and American Life Insurance Co. into special purpose vehicles, which are used ahead of a move to separate a unit from a parent company. The government is receiving preferred equity stakes in the two life insurance companies worth $25 billion in exchange for a reduction in the amount of money AIG owes the government.

AIG will continue to hold the common stakes in AIA and Alico until it determines whether to complete initial public offerings for the companies or sell them privately. No timetable yet has been announced for when an IPO or sale will be completed.

The plan to separate AIA and Alico and give the government $25 billion in preferred shares of the two companies was first announced in late June. AIG had been discussing sales of the units as early as March.

Shares of the financial conglomerate based in New York rose $1.74, or 6.1 percent, to $30.14 in premarket trading.

AIG was bailed out by the government last fall at the peak of the credit crisis. As losses continued to pile up, the government eventually extended AIG an aid package worth more than $180 billion. The government also received a nearly 80 percent stake in AIG in return for the support.

As of Sept. 30, AIG had tapped $122.31 billion of the aid package and owed the government $85.66 billion in loans. Tuesday's separation of AIA and Alico would reduce the outstanding aid package to $97.31 billion and the amount owed in loans to $60.66 billion.

"AIG continues to make good on its commitment to pay the American people back," AIG CEO Robert Benmosche said in a statement.

The government received a preferred stake worth $16 billion in AIA, an Asian life insurer with more than 20 million customers. The preferred stake in Alico, an international life and health insurance firm that operates in more than 50 countries around the world is worth $9 billion.

AIG said it would take a $5.7 billion charge during the fourth quarter tied to accelerating the moves of AIA and Alico into separate, stand-alone units.

Benmosche reiterated AIG continues to expect volatility in quarterly results as the insurer continues to restructure its operations to repay the government.