AIG to get another $22 billion in TARP funds for restructuring and Geithner still expects a profit

And it's only Monday

Reporting by David Lawder
11/1/10

(Reuters) - Bailed out insurer American International Group will get up to $22 billion more in U.S. taxpayer funds to facilitate its restructuring and prepare for an eventual government exit, the U.S. Treasury said on Monday.

But the Treasury reiterated that it expects the government to earn an overall profit on bailout investments in the insurance giant -- once as high as $180 billion -- assuming the AIG restructuring announced on September 30 is executed.

AIG will draw the $22 billion from remaining Troubled Asset Relief Program funds to repurchase Federal Reserve preferred stock interests in the special purpose vehicles holding two key subsidiaries being sold off, AIA Group Ltd and American Life Insurance Co (ALICO), the Treasury said in a statement.

Following the sale of ALICO and AIA's initial public offering in Hong Kong, the Treasury said it will receive the remaining special purpose vehicle assets, including AIG's remaining shares in AIA and shares in ALICO buyer MetLife Inc. These assets "significantly exceed the amount of the preferred investments, and as such, no losses are expected on those preferred interests," the Treasury said.

Currently, the New York Fed values the AIA and ALICO preferred interests at $26.1 billion -- with part of this to be paid down from sale and IPO proceeds.

The bulk of the $20.5 billion in proceeds from the AIA IPO and $7.2 billion in cash from the AIA sale will go to pay off a Federal Reserve credit facility, at a cost of about $20 billion including accrued interest and fees.

AIG on Monday closed the sale of ALICO to Metlife Inc for $16.2 billion, with $7.2 billion in cash and the remainder in stock.

Following the restructuring, expected to be completed by the end of the first quarter of 2011, the Treasury will own 92.1 percent of AIG's common stock, or about 1.66 billion shares.

Based on Friday's market closing price of $42.01, the government's stake was worth $69.5 billion, compared with the Treasury-only investment of $47.5 billion. The $69.5 billion value excludes the special purpose vehicles, which includes stakes in AIA, MetLife and in AIG subsidiaries Nan Shan in Taiwan, Star Life and Edison Life Insurance in Japan and aircraft leasing firm International Lease Finance Corp.

"It is expected that proceeds from the monetization of these assets will be used to repay the SPV preferred interests in full," the Treasury said.

Two other Federal Reserve bailout special purpose vehicles, Maiden Lane II and Maiden Lane III, hold AIG mortgage assets whose value now exceeds their original Fed loan amounts. These loans, totaling $27.8 billion, are expected to be repaid in full from the assets held in the vehicles, the Treasury said.