American International Group Inc., the insurer that turned over a majority stake to the U.S. as part of its bailout, is in talks with regulators to become independent, its chief executive, Robert Benmosche, said.
"We have commenced discussions with the U.S. government on the process and terms of a complete government exit," Benmosche told employees Friday in a memo. "Depending of course on market conditions, which could remain volatile, we expect to make meaningful progress in 2010 on repaying the Federal Reserve Bank of New York, and over time fully repaying all of our obligations to taxpayers."
Benmosche is divesting two non-U.S. life insurance divisions, AIA Group Ltd. and American Life Insurance Co., to help repay the 2008 bailout that swelled to $182.3 billion. Benmosche must also improve profits at AIG's remaining property/casualty and retirement services operations to fully repay the U.S., which holds a stake of almost 80% in the firm.
AIG has delivered to the Treasury Department a plan that includes replacing the government's stake with private ownership, according to a person with knowledge of the proposal who declined to be identified because it has not been finalized.
AIG is planning an initial public offering for AIA after the collapse of a $35.5 billion agreement to sell the division to Prudential PLC. AIG struck a deal to sell Alico to MetLife Inc. for about $15.5 billion.
After selling the life divisions, AIG, of New York, would be "well within striking distance of completely repaying the Fed," Benmosche said in the letter. AIG separately owed the Treasury almost $50 billion, according to a June report from the Congressional Oversight Panel.
The Treasury's chief restructuring officer, Jim Millstein, said in a May 26 hearing that if AIG's core insurance businesses earn about $8 billion a year, the company would have enough value to repay the U.S. Those units produced $2.2 billion in operating earnings in the second quarter, matching the results from the first three months of the year, AIG said Friday.
The Treasury is considering a plan to convert AIG preferred shares into common stock and sell the holdings over two years, a person with knowledge of talks with the insurer said in April. The plan may be modeled after the Treasury's disposal of its stake in Citigroup Inc., the person said.
AIG on Friday posted second-quarter net adjusted income of $1.34 billion, up 17% from the year-earlier period, as results improved from U.S. life operations.
The insurer, once the world's largest, was first rescued in September 2008 by the Fed. After three revisions, its lifeline includes the $60 billion Fed credit facility, a Treasury Department investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by the company.
The debt on the credit line has declined for seven of the past nine weeks and is $23.7 billion, according to data released by the Fed late Thursday. AIG was allowed by the government in December to reduce the draw by $25 billion in anticipation of proceeds from divestitures of Alico and AIA.