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How AIG will pay back $49 billion

Marketplace Staff Sep 14, 2010

How AIG will pay back $49 billion

Marketplace Staff Sep 14, 2010


Kai Ryssdal: I’m not a big one for anniversary stories, but I am obliged to note here that we are creeping up on two years since the financial industry became unhinged. Among the biggest of the “too big to fail” crowd was the insurance company AIG. It still owes taxpayers about $120 billion — that’s out of the $182 billion it originally got in bailout money. As a result, taxpayers own just shy of 80 percent of that company.

Serena Ng reports in the Wall Street Journal today that the government’s working on an exit plan. Serena, welcome to the program.

Serena Ng:Thanks for having me.

RYSSDAL: So you write this morning in the paper that the government has come up with a way to get itself out of AIG over time. But if I read it right, the first thing we have to do is get ourselves deeper into AIG, is that right?

NG: Yes, in some regards, you’re right. But the government doesn’t have to put more money into AIG, or at least that’s the hope. The Treasury currently has something like $49 billion in what is known as preferred shares in AIG. And they’re thinking of converting that into common shares, which are basically the kind of shares that most investors trade day-to-day, and then slowly selling that off slowly to the public to recoup that $49 billion that the Treasury is owed by AIG.

RYSSDAL: Is there a timetable for this?

NG: It’s pretty well known that this process is going to take a few years, because we’re talking about a lot of money here. And obviously, a lot of debt depends on whether investors are willing to buy AIG shares. What they’re talking about right now is potentially starting the process as early as the first half of next year, and hopefully by 2013 or 2014, we’ll see the government get out. Right now, taxpayers are still owed roughly $125 billion. Some of it is going to be paid back from asset sales, and some of it is going to be paid through the Treasury selling its shares.

RYSSDAL: You pointed out in your piece this morning actually that AIG does not have enough assets left to sell to be able to pay back the government in full.

NG: That’s right. They’re in the process of selling two very large overseas life insurance companies. After they finish that, they still have that $49 billion that they owe the Treasury. After selling off its main businesses, it’s going to be a company that turns out profits of about $8 billion a year, and if they’re just using the earnings to repay the government, it could take six or seven years. So the government wants to get out quickly, so they’re trying to think of a way to get out through selling their shares, through investors, which should actually take much less time than if AIG slowly earned its way back to repay the government.

RYSSDAL: So let me see if I have this straight, just to recap: If AIG can sell off all of its assets that it needs to raise the cash, and if the government can find buyers for all of its AIG shares, then maybe the government gets its money back. Sounds like a lot of ifs, a lot of maybes, a lot of hope. How realistic is any of this?

NG: I mean, there are many, many risks to this. A lot of it also depends on how the stock market performs. I mean, if the stock market has another deep dive, pretty likely that this whole plan could be pushed back until market conditions recover. The other thing AIG needs to do and needs to show and hasn’t yet shown is a really steady stream of consistent profit, so that investors will feel comfortable enough to buy into the company. It’s a lot easier said than done, but market conditions have recovered quite a bit, AIG’s businesses have stabilized somewhat. So they are on the path to paying back, but obviously a lot of work still needs to be done.

RYSSDAL: Serena Ng, with the Wall Street Journal on AIG and how the government might be able to get out of it. Serena, thanks so much for your time.

NG: Thanks for having me.

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