American International Group (AIG) is in talks with the government to accelerate its exit plan and repay U.S. taxpayers, thereby regaining its independence, according to The Wall Street Journal, which cites unnamed sources.
During the financial crisis, AIG's bets on mortgage-backed securities and other toxic assets threatened to topple the company. The company has received a total of $182 billion in bailout funds since its near-collapse in September 2008. AIG has been selling off assets to strengthen its financial position and repay the government.
Now, as early as the first half of 2011, the U.S. Treasury could convert $49 billion of the firm's preferred shares into common shares, WSJ sources said. This would bring the government's ownership stake in AIG to above 90%, from 79.8% currently.
The shares would gradually be sold off to private investors, according to the Journal, and therefore reduce the U.S. government's stake in the insurance giant and, potentially, even earn the government a profit if the shares rise in value.
For the Treasury, a successful exit could take several years and would depend on market conditions, the report stated. While AIG has been selling assets, its deal to sell its Asia-based life insurer, AIA Group, to Britain's Prudential PLC for $35.5 billion fell apart in June. It has since decided on an IPO of the Asian unit and sought listing approval in Hong Kong.
In its quest for independence, AIG also recently prepared its first bond offering in two years. This could be an important test to indicate whether investors think the insurance giant can stand on its own and ultimately repay taxpayers for its bailout.