Treasury's Tricky Task: Cutting Ties To AIG The Treasury Department is in talks with AIG to find ways to make the insurance giant independent again after bailing it out two years ago. But extricating the government from AIG is a complex and delicate task. One problem: The company still owes the Fed and Treasury some $100 billion.
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Treasury's Tricky Task: Cutting Ties To AIG

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Treasury's Tricky Task: Cutting Ties To AIG

Treasury's Tricky Task: Cutting Ties To AIG

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DAVID GREENE, Host:

NPR's Jim Zarroli reports.

JIM ZARROLI: When the Treasury Department and the Federal Reserve Bank of New York bailed out AIG two years ago, they acquired a huge share of the company in return. And U.S. taxpayers now own some 80 percent of the company. Today, all of the parties involved would like nothing better than to see the relationship end, says Clark Troy, senior analyst at Aite Group.

CLARK TROY: The belief is, and there's really no reason to doubt this belief, is that the quicker they can move to restore confidence from all major stakeholders, the better it is for everyone.

ZARROLI: So AIG has been selling off some of its prized assets, like its Asian insurance unit, paying off debt and trying to get its balance sheet in order. Christopher Whalen is managing partner at Institutional Risk Analytics.

CHRISTOPHER WHALEN: The best way to do that is to run this company, get it in the best shape possible in terms of its operating results, and then see if we can quietly, you know, reduce and ultimately sell off the government's stake. That's a happy ending.

ZARROLI: But selling the government's stake will be a tricky process. The U.S. owns preferred shares of AIG stock. It plans to convert them into common shares, which means they can be sold on the open market. But the government owns so much of AIG stock that selling too much of it too quickly would cause its share price to plummet. So it has to go slowly and look for the right opportunities, says Whalen.

WHALEN: And they have to wait until the market has got a positive enough view of the company that they can sell stock.

ZARROLI: U.S. officials say once they do sell the shares, they believe they can recoup the taxpayers' investment in AIG and even turn a profit. Whalen is skeptical.

WHALEN: Is it possible? Sure. Will they make money in real inflation adjusted terms? I don't know.

ZARROLI: The good news is that aside from the derivatives debacle of two years ago, AIG remains a pretty strong and profitable company. It has new management and it's been slowly unwinding the massive portfolio of bad investments it had and concentrating on what it knows best: the insurance business. Again, Clark Troy.

TROY: AIG has a lot of strong brands. There's a lot of good insurance companies, a lot of good insurance competency within AIG.

ZARROLI: Jim Zarroli, NPR News, New York.

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