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AIG stabilized, US report says

But repayment concerns raised

By Mary Williams Walsh
New York Times / September 22, 2009

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The research arm of Congress reported yesterday that American International Group’s financial condition had stabilized but said it was not clear whether the giant insurance group would ever be able to restructure and repay its federal rescue package.

The Government Accountability Office said the $182 billion bailout had succeeded in breaking AIG’s calamitous fall and produced signs of improvement in its insurance businesses. But the company’s ability to rebuild itself and survive over the long term still depends on “market conditions and continued government support,’’ or factors largely beyond the company’s control.

Paying off the debt to the government will be hard, the report suggested, because raising the money involves selling off subsidiary businesses that make up 65 percent of the company and employ roughly 70,000 people.

Meanwhile, the report suggested that AIG could soon be struggling to stay abreast of its debt. It said, for instance, that the original terms of the rescue required AIG to pay 10 percent dividends on the preferred stock it issued to the Treasury. But with a dividend coming due in November, it was not clear whether AIG had the means to pay. And the report called attention to the risks in a debt-relief measure granted by the Federal Reserve Bank of New York last March. The measure gave AIG the right to reduce about $8.5 billion of its debt to the Fed by giving the Fed an ownership stake in the net future cash flows of its domestic life insurance companies.

AIG provided a written statement that said: “AIG remains committed to reducing risk and repaying taxpayers.’’

The new assessment of AIG’s prospects coincided with word that a senior House Democrat was planning to ask the Federal Reserve and the US Treasury about possibly easing the terms of AIG’s government debt. Representative Edolphus Towns of New York, chairman of the House Committee on Oversight and Government Reform, began considering debt relief after meeting last week with Maurice R. Greenberg, AIG’s former CEO, according to a spokeswoman.