WASHINGTON BUREAU — American International Group Inc. (NYSE:AIG) today took a big step toward disentangling itself from the federal government.
AIG, New York (NYSE:AIG), exchanged used cash to pay off $21 billion in credit from the Federal Reserve Bank of New York, then used preferred shares and common stock to restructure the financing provided by the U.S. Treasury Department.
The Treasury Department now owns 92% of AIG, up from 79.9% in September 2008.
Treasury officials says the agency owns 1.655 billion shares of AIG common stock and about $20 billion of preferred equity interests in two AIG subsidiaries.
Treasury says it has $68 billion invested in AIG.
AIG's original deal called for it to exchange 79.9% of its stock in return for up to $85 billion in cash from the Federal Reserve.
The government authorized $176.5 billion in aid for AIG, and total aid actually peaked at $191.4 billion, according to the independent auditor of the Troubled Asset Relief Program (TARP).
At the end of the federal fiscal year – Sept. 30, 2010 — the total outstanding balance on AIG facilities was $123.3 billion, the TARP auditor said.
BENMOSCHE
AIG President Robert Benmosche says the recapitalization should be viewed as a testament to the dedication of "terrific people both in the government and at AIG."
"Today, AIG, with the support of countless people, has accomplished a huge goal that many people once thought impossible: completely repaying the Federal Reserve Bank of New York," Benmosche says in a statement. "We will continue to focus on strong business performance for the benefit of all of our stakeholders, including our largest shareholder, the Treasury Department."
GEITHNER
Treasury Secretary Timothy Geithner, who arranged for New York Fed support for 
AIG while he was president of the New York Fed, before becoming Treasury secretary, says the Treasury Department remains optimistic that taxpayers will get back "every dollar of their investment in AIG."
"Treasury welcomes the culmination of AIG's recapitalization plan, which is a vital part of that company's turnaround and puts Treasury in an excellent position to begin realizing value for taxpayers," Geithner says.
FAIRHOLME
In related news, Fairholme Capital Management L.L.C., Providence, R.I., AIG's largest private shareholder, says it intends to engage in discussions with AIG's management, board and shareholders about the company's capital structure.
Fairholme, which is run by Bruce Berkowitz, owns about 44 million shares, or about 32% of the AIG stock that is not owned by the U.S. government.
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