WASHINGTON
Early last week, before American International Group announced that repayment of its debt to the government was imminent, the Federal Reserve Board said it earned $3.4 billion in 2010 on its investments in the once troubled company.
According to a statement of unaudited financial results, the Fed said it earned $2.1 billion in interest income from credit extended to AIG and $1.3 billion in dividends on preferred interests in AIA Aurora LLC and ALICO Holdings LLC, two life insurance subsidiaries of AIG.
AIG retains control of AIA Aurora, which stands for American International Assurance Co., Ltd., but sold ALICO, which stands for American Life Insurance Company, to MetLife late last year. The deal for ALICO was announced in March 2010 and closed in November.
AIG now owns shares in MetLife that are subject to an agreement as to when they can be sold.
Control of AIA was divested through an initial public offering in September 2010; AIG still owns a one-third stake in it, according to data provided in securities filings.
Both transactions raised $37 billion.
The Fed also owns two facilities, Maiden Lane II and III, which hold mortgage-backed securities acquired by AIG that had plunged in value starting in late 2007.
No current valuation of the Maiden Lane facilities was available at press time.
The Fed provided cash to AIG in return for the securities, and the Fed shares profits in the securities earned from interest and dividends as well as the increase in value as the economy has rebounded.
The Fed disclosure was made in a statement in which it said that it had earned approximately $80.9 billion in 2010—a record—and that it forwarded $78.4 billion of that to the Treasury.
The statement said the profit compared to $53.4 billion in 2009.
The Fed's large increase in net income primarily stems from its purchases of securities in the open market in 2008 and 2009 in an effort to keep the economy afloat after financial markets became illiquid when the economy bottomed out and the value of housing securities plunged.
The Fed's portfolio has tripled to $2.16 trillion because it bought securities, including U.S. government debt and mortgage-linked bonds, in a move to drive down borrowing costs and stimulate the economy.
"The increase was due primarily to increased interest income earned on securities holdings during 2010," the U.S. central bank said in releasing preliminary unaudited results.
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