AIG to pay back some of bailout billions

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The Independent Online

The ultimate cost to the taxpayer of bailing out the insurance giant AIG could be less than first feared, it is emerging. The New York Federal Reserve, the arm of the US central bank, which directed the rescue, could reap $9bn (£6bn) in repayments if a deal to sell one of AIG's biggest divisions goes ahead as planned in the coming weeks.

And it was reported yesterday that the Fed is sitting on notional profits from credit derivatives that it took on as part of its restructuring of AIG.

The Federal Reserve chairman Ben Bernanke, whose re-appointment is facing unusually tough opposition in some quarters in Congress because of fury over the AIG bailout, has agreed to an audit of the central bank's dealings with AIG. Last September, when the insurer's huge exposure to credit derivatives losses threatened to bankrupt it and wreck havoc across the financial markets, the Fed and the US Treasury led a rescue deal that in effect nationalised the company.

Up to $182bn of public money has been invested in AIG stock, lent to the company or offered as a guarantee against future losses.

New York Fed loans secured on AIG's assets will be repaid as those assets are sold, and the central bank stands to net $9bn from the $14bn-$15bn sale of American Life Insurance Co to MetLife. The pair have recently begun closing in on a deal after talking for months.

It was also reported yesterday that a $29.6bn portfolio of collateralised debt obligations held in an AIG-related investment vehicle funded by the Fed, have made a paper profit of 50 per cent. The CDOs were purchased at the time AIG unwound trading with counterparties including Barclays and Goldman Sachs. Political anger has focused on why those counterparties were paid in full.

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