With its recent repayment of $1.5 billion to the treasury, American International Group (NYSE: AIG) now owes an estimated $45 billion to taxpayers. Amid the financial crisis in 2008, the insurer had to be bailed out for a staggering $182 billion. Kudos to AIG for repaying three-quarters of that amount in just a few years.
So is all good now? I do think it's pulling itself out of a hole, and it's time we took stock.
Non-core asset sales
In a bid to repay the government, AIG has gotten rid of more than $50 billion of its assets. The company has been on a rampage more recently when it comes to disposing of non-core assets, in an attempt to help generate cash both to repay the bailout money and beef up its capital ratios.
Earlier this year, the insurer sold a $500 million stake in Blackstone Group and is set to raise $6 billion by selling its stake in its overseas life-insurance subsidiary AIA. It currently holds a 32.8% stake in AIA after having sold two-thirds of its stake in 2010 by means of a whopping $20.5 billion IPO in Hong Kong.
In fact, last year, the American insurer made serious strides in repaying Uncle Sam. It generated $2.16 billion from the sale of its Taiwanese unit Nan Shan Life Insurance and $15.5 billion by selling its insurance wing, American Life Insurance, better known as Alico, to fellow insurer MetLife (NYSE: MET) -- incidentally, one of the four banks to fail the recent round of Federal Reserve stress tests. GE Capital, the financial-service unit of General Electric (NYSE: GE),is set to acquire MetLife's banking business at the end of the second quarter.
Rolling up the TARP
The rush to sell assets makes sense, with the Treasury making efforts to wind down the Troubled Asset Relief Program (TARP). The Fed currently holds $47 billion worth of AIG's toxic assets, which it had acquired as part of the bailout. Now, the Fed has put these assets on the auction block. In February, Goldman Sachs (NYSE: GS) acquired AIG's mortgage bonds worth $6.2 billion. That follows the sale of $7 billion worth of mortgage bonds to Credit Suisse (NYSE: CS) in January. The sale of these assets will help the central bank repay Maiden Lane II. Other bidders for these toxic assets included Morgan Stanley and Barclays, but Goldman outbid both to buy AIG's mortgage-backed assets.
Banks now want more of AIG's toxic CDOs. In a way, that would be good. It would help AIG get rid of its troubled assets and also help reduce the amount it owes the government.
Apart from reducing its ties with the government, the repayment has a positive effect on the insurer. In the words of Sandler O'Neill & Partners analyst, Paul Newsome the repayment is "going to reduce the complexity of the balance sheet ... as well as reduce the complexity of the company in general."
AIG posted profits in the most recent year, and once the TARP debt is finally off its balance sheet, it will be in even better shape. I'm putting AIG on my Watchlist, and you can follow the company, too -- simply add the stock to your free Watchlist.
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