GAO: AIG Steady, But Future is Uncertain

By Chris Carey, Bailout Sleuth

Federal assistance has been critical to keeping American International Group Inc. afloat, but it is unknown if the company will ever be able to repay taxpayers, according to a new government report.

The Government Accountability Office said that the insurance giant’s operations had stabilized since last year, when the company faced imminent collapse because of its overinvestment in housing-related derivatives. At the time, government intervention was understood as key to preventing an economy-wide collapse.

To shore up AIG, Treasury extended as much as $182 billion in various forms of assistance, including loans, access to capital and stock purchases. So far, AIG has taken advantage of approximately $120 billion of the available aid.

According to the GAO, these efforts have succeeded in the primary purpose – to prevent AIG’s total collapse. It said the company’s credit rating had stabilized as it slashed debt and had shown a small profit in the last year.

Nevertheless, it said that the company’s long-term prospects were murky, as was the possibility of taxpayers ever recovering the money spent propping it up.

“While federal assistance has helped stabilize AIG’s financial condition, GAO-developed indicators suggest that AIG’s ability to restructure its business and repay the government is unclear at this time,” the report said. In particular, the GAO found that the company was still heavily reliant on federal assistance to meet its liquidity needs, raising questions about its long-term growth prospects.

“The government remains exposed to risks, including credit risk and investment risk, which could result in the Federal Reserve and Treasury not being repaid in full,” the GAO said.

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