NU Online News Service, Jan. 14, 3:04 p.m. EST

WASHINGTON—American International Group completed a critical step in its effort to again become a completely private company, exchanging more of its government support for common stock owned by the Treasury Department and paying off its debt to the Federal Reserve Board in cash.

The deal was announced as the Treasury met this week in Washington, D.C. with bankers seeking to manage the public offering of a large portion of its stake in AIG.

At the same time, Fairholme Capital Management, AIG's largest private shareholder, disclosed Monday that it intends to engage in discussions with AIG's management, board and shareholders "regarding the company's capital structure."

AIG announced the plan in a securities filing with the SEC. Fairholme owns 44.3 million shares, or 31.6 percent of the company's stock that isn't owned by the U.S. government. The asset manager is run by Bruce Berkowitz.

Under the deal completed Friday, the Treasury Department's stake in the company rose to 92 percent, up from 79.9 percent under the original deal negotiated in September 2008 with the Federal Reserve Board.

Treasury officials said that the agency now owns 1.655 billion shares of AIG common stock and approximately $20 billion of preferred equity interests in two AIG subsidiaries.

Treasury said its total cash investment in AIG is now $68 billion.

AIG also repaid in cash the $21 billion remaining on the credit facility it had with the Federal Reserve Board.

AIG's original deal called for it to exchange 79.9 percent of its stock in return for up to $85 billion in cash from the Federal Reserve.

According to a report released last October by the independent auditor of the Troubled Asset Relief Program (TARP), the government authorized $176.5 billion in aid to AIG, but total aid reached $191.4 billion at its peak.

As of Sept. 30, the end of the government fiscal year, the outstanding balance on the various facilities was $123.3 billion, the report said.

"Today is a very important day that should be viewed as a testament to the unrelenting dedication of terrific people both in the government and at AIG," said Robert H. Benmosche, AIG president and chief executive officer.

"Today AIG, with the support of countless people, has accomplished a huge goal that many people once thought impossible: completely repaying the Federal Reserve Bank of New York."

Now, he said, "we will continue to focus on strong business performance for the benefit of all of our stakeholders, including our largest shareholder, the Treasury Department."

Treasury Secretary Timothy Geithner said that "the agency remains optimistic that taxpayers will get back every dollar of their investment in AIG."

He added, "Treasury welcomes the culmination of AIG's recapitalization plan, which is a vital part of that company's turnaround and puts Treasury in an excellent position to begin realizing value for taxpayers."

He cited Mr. Benmosche as well as the management and board of AIG, which "transformed this institution in less than two years under very trying circumstances."

He added, "Our extraordinary and hard working staff here at Treasury and the great team at the Federal Reserve also deserve high praise for helping make this day a reality."

Special Reports /

Treasury, AIG Complete Recapitalization Transaction

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