NU Online News Service, Sept. 8, 12:00 p.m. EDT
American International Group has paid back about $62 billion of its $183 billion debt to the government, but whether it can repay the full amount is unclear, a government study said yesterday.
The information came in a General Accountability Office report, which detailed steps by the Federal Reserve and Treasury to keep AIG afloat.
"The sustainability of any positive trends of AIG's operations and repayment efforts is not yet clear. The government's ability to recoup the federal assistance money depends on the long-term health of AIG…" the report said.
And while the Federal Reserve and Treasury have taken steps to protect the government's interests "risks still remain," the GAO found and "AIG's ability to divest its assets to make repayment [to the Federal Reserve] relies heavily on conditions in financial markets," the GAO wrote.
The Federal Reserve System and the U.S. Treasury Department started helping New York-based AIG, in September 2008, in response to fears that the financial crisis occurring at the time "threatened the stability of the U.S. banking system and the solvency of a number of financial institutions, including AIG," said the GAO report.
By April 2009, government agencies had allocated more than $180 billion to handle tasks such as keeping AIG's credit default swaps program from imploding and meeting the general financial needs of the parent company and its subsidiaries, GAO officials wrote.
As of Sept. 2, AIG has paid $6.8 billion toward principal on two Maiden Lane subsidiaries that the Federal Reserve Board of New York set up.
The Maiden Lane II and Maiden Lane III entities were formed to unwind AIG's huge, complicated financial products operations.
The Fed and the Treasury Department took "steps intended to protect the government's interest," officials write. "These include making loans that are secured with collateral, instituting certain controls over management, and obtaining compensation for risks such as charging interest, requiring dividend payments, and obtaining warrants. Moreover, Federal Reserve and Treasury staff routinely monitor AIG's operations and receive reports on AIG's condition and restructuring."
Despite all of those efforts, "the government remains exposed to risks, including credit risk and investment risk, which could result in the Federal Reserve and Treasury not being repaid in full," GAO warned.
"GAO-developed indicators suggest that AIG's ability to restructure its business and repay the government is unclear at this time…. after a declining trend through 2008 and early 2009, indicators of AIG insurance companies' financial risk suggest improved financial conditions that were largely results of federal assistance."
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
