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article imageAIG Debt with Federal Reserve Bank of New York Cut by $25 Billion

By Chris Dade     Dec 1, 2009 in Business
The amount of money owed by American International Group (AIG) to the Federal Reserve Bank of New York has been reduced by $25 billion after a deal which involves the bank receiving shares in two of AIG's subsidiaries.
In a deal which CNN confirms was first announced in March the Federal Reserve Bank of New York, the most important of the 12 Federal Reserve Banks in the U.S. and the place where the nation's monetary policy is effected, will receive preferred shares worth a total of $25 billion in American Life Insurance Co. (ALICO) and American International Assurance Co (AIA).
CNN reports that the shares in the former subsidiary will be worth $9 billion and those in the latter subsidiary worth $16 billion. However IFA Web News states that it is ALICO in which the shares will be worth $16 billion and AIA in which they will be worth $9 billion.
Nevertheless, what is certain is that AIG's indebtedness to the Federal Reserve Bank will still stand at $17 billion after the completion of the latest deal, the U.S. Treasury being owed $44.8 billion from a loan made under the Troubled Asset Relief Program (TARP).
The equity of ALICO and AIA will be moved in to special purpose vehicles in readiness for either initial public offerings or sales to third parties.
AIG was given a total of $182 billion in bailout money, although a sizable chunk of that bailout is not repayable as it took the form of government asset purchases. Asset sales should provide AIG with the funds it needs to pay off the remaining $62 billion it owes to the Federal Reserve Bank of New York and the Treasury, two consecutive quarters of profit not being sufficient to settle AIG's debt with the U.S. taxpayer.
The final quarter of 2009 will see AIG incur a restructuring charge of $5.7 billion which will likely swallow up any profit made in October, November and December.
Despite recent profits the position of AIG is still seen as somewhat precarious, with at least one analyst reportedly concerned at the size of its loss reserves.
Robert Benmosche, CEO of AIG since August, has issued a statement regarding the news of his company's reduction of the amount of money it owes the taxpayer. In the statement Mr Benmosche said:Today’s announcement that we have reduced our debt to the Federal Reserve Bank of New York by $25 billion sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back.
Moreover, these transactions position AIA and ALICO, two terrific, unique international life insurance businesses, for the future
IFA News Web says that Mr Benmosche added:We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities, such as the previously announced loss that we expect to recognize in the upcoming quarter related to our announced agreement to sell our Taiwan-based life insurer Nan Shan
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