When I heard AIG failed - I was terrified

You do know why, don't you? - Backwards Typist

They want the government off their back so they can start paying their execs big dollars again, plus read who helped them get out from under:

For AIA, this is a win-win situation.  With the U.S. government off its back, the company no longer faces restrictions on executive remuneration.  It has received financial backing from the Kuwait Investment Authority, Malaysia’s State Pension Fund, China’s sovereign wealth fund, and billionaire Cheng Yu-Tung’s New World.  The company operates in 12 markets and is expected to make over $2 billion in profits for 2010.  AIA CEO Mark Tucker said in a town hall meeting with employees that the company could triple in value to $100 billion, but AIG will be missing out on this incredible opportunity because it has to repay its debt to U.S. taxpayers.

How much does AIG owe the government? Well they were bailed out by the Federal Reserve Bank of New York in 2008 for $85 billion.  It also received $70 billion in TARP money in two transactions in exchange for equity.  The Fed also received equity stakes in AIA and Alico worth $16 and $9 billion respectively.

That’s not all, AIG also received $22.5 billion via the Fed’s Maiden Lane II and $30 billion via Maiden Lane III.  These two were special purpose vehicles, a sort of independent holding company, that the New York Fed created to ring fence toxic residential mortgage backed securities and collaterized debt obligations in the heat of the crash.  While much of the equity investments were used to pay off the NY Fed’s original credit lines (bringing it down to $33.7 billion by July), the insurer still owes the U.S. government $132.1 billion, minus whatever value the two toxic SPVs can rack up.  The Federal Reserve’s most recent report on these holdings were updated on August 23.  Using “fair value,” or the Fed’s magic wand, they were valued at $14.7 and $16.3 billion, respectively.

This brings AIG’s outstanding debt and equity balance to $101.2 billion.  Much higher than we generally hear, right?  Well, with AIA’s initial public offering generating $17.8 billion, and possibly $2.7 billion more, it’s more than probable that AIG will go ahead and pay the entire $16 billion stake the Fed has in AIA.

Almost a month ago, on September 30, AIG announced its plans to pay back the U.S. taxpayers.  A few weeks later, Neil Barofsky, head of the TARP watchdog, said in his quarterly report to congress that Tim Geithner’s Treasury had changed the methodology it uses to estimate its losses from its involvement with AIG, without properly disclosing the change.  The new methodology lowered the estimate from $42.5 to only $5 billion.  This, “PR push,” responded to the “Treasury’s unfortunate insensitivity to the values of transparency.,” according to the report.  The Treasury denied any wrongdoing.

So, for AIG this is one step forward, two steps back.  It has successfully set its Asian child free, out into the world.  In doing so, it generated a huge chunk of money which will be used to pay off its financial crisis follies.  In order to do so, it has let go of a core asset in the most dynamic region of the world, a move AIG will find itself regretting in years to come.

UDPATE:  According to the Wall Street Journal and MarketWatch, AIG announced on Friday it had exercised its option to sell the additional 15% of AIA shares it had, raising the total value of IPO to $20.5 billion.