Daniel Gross

AIG Pays Back $1.5 B to Treasury

Contrary Indicator

Missed this last week. Last Thursday, AIG made a $1.5 billion payment to Treasury. Technically, the payment went to "retire the Treasury's interest in AIA Aurora LLC (AIA SPV) — a special purpose vehicle created to hold ordinary shares of American International Assurance Company, Ltd. (AIA)." AIA was one of AIG's Asian subsidiaries. The assets of AIA had originally been pledged to the Federal Reserve as collateral for a loan to the company. The Fed in turn transferred the holdings to Treasury.

AIG has been using proceeds from the sale of a stake in AIA to take out Treasury's "investment" in AIA. Earlier in March, it returned about $7.1 bilion to Treasury to retire the AIA Aurora stake that Treasury held. As AIG noted:  "The payment was made one year ahead of schedule."

What's left of the public's rescue of AIG? Well, Maiden Lane III, one of the vehicles created by the New York Fed to remove toxic assets from AIG's balance sheet, has yet to fully wind down. As of last Thursday, Maiden Lane III owed $8.27 billion in principal on a loan to the New York Fed and another $5.5 billion to AIG. But Maiden Lane III's assets are worth about $17.45 billion at current market prices. Which means that over time, Maiden Lane III is likely to generate sufficient funds to repay what it owes to AIG and to the New York Fed, and to return profits of about $3 billion to the taxpayers.

 The outlook isn't quite sanguine on the remainder of Treasury's "investment" in AIG. Treasury is owed about $35.85 billion for the common shares it purchased. And it is likely to take several years for AIG to earn sufficient fund to buy back the shares, or to get to a point where it it is sufficiently healthy that large-scale sales by Treasury won't cause the stock to tank.

Daniel Gross is economics editor at Yahoo! Finance

follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com

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