AIG, U.S. move closer to deal on bailout exit: sources

NEW YORK (Reuters) - American International Group Inc and the U.S. government are moving closer to a deal on how the Treasury Department would exit its investment in the bailed-out insurer, sources familiar with the situation said on Sunday.

The American International Group (AIG) building is seen in New York's financial district March 16, 2009. REUTERS/Brendan McDermid

The situation, however, is still fluid and there are many moving parts, one of the sources said.

The plans may be unveiled as early as this week, but the exact timing of an announcement depends on the pace of negotiations, Bloomberg reported.

A possible conversion of the Treasury’s $49 billion preferred stake in AIG into common stock is one of the options being discussed, Reuters previously reported.

Such a conversion, which could start as soon as the first half of next year, would possibly raise the government’s stake in AIG to above 90 percent from nearly 80 percent. The Treasury would sell its common stake to investors over time.

“Our objective remains the same at AIG, which is to repay taxpayers and position AIG over time as a strong, independent company worthy of investor confidence,” AIG said. The sources are anonymous because talks are not public.

The exit plan being discussed would chart the eventual disengagement of the government from AIG, which was propped up by a $182.3 billion taxpayer-funded aid package during the financial crisis.

The bailout saw funds from the Federal Reserve Bank of New York and the Treasury, and was structured so that the Fed must be paid back first, which AIG still has to do. But the talks show that the insurer is making progress in its restructuring.

AIG owes the Fed about $21 billion under a credit facility. The Fed also owns $25 billion worth of preferred interest in two of AIG’s foreign life insurance units that must be monetized.

The company expects a big part of that money to come in by the end of the year as it closes on the sale of American Life Insurance Co to MetLife Inc for $15.5 billion and lists American International Assurance (AIA) in Hong Kong. AIA is planning an estimated $15 billion IPO next month in Hong Kong.

Reporting by Paritosh Bansal in New York, editing by Martin Golan