Troubled Asset Relief Program:
Update of Government Assistance Provided to AIG
GAO-10-475: Published: Apr 27, 2010. Publicly Released: Apr 27, 2010.
Audio interview by GAO staff with Orice Williams Brown, Director, Financial Markets & Community Investment.
Assistance provided by the Department of the Treasury (Treasury) under the Troubled Asset Relief Program (TARP) and the Board of Governors of the Federal Reserve System (Federal Reserve) to American International Group, Inc. (AIG)--a holding company that, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad--represents one of the federal government's largest investments in a private sector institution since the financial crisis began in 2008. Treasury and the Federal Reserve provided assistance to AIG in September 2008 that was restructured in November 2008 and March 2009. As part of GAO's statutorily mandated oversight of TARP, this report updates the risk and repayment indicators GAO originally reported in September 2009 (GAO-09-975). Specifically in this report, GAO discusses (1) trends in AIG's financial condition, (2) trends in the unwinding of AIG Financial Products (AIGFP), (3) the financial condition of AIG's insurance companies, and (4) the status of AIG's repayment of its federal assistance. To update the indicators, GAO primarily used data as of December 31, 2009, and more current publicly available information; reviewed rating agencies' reports; identified critical activities; and discussed them with officials from Treasury, Federal Reserve, and AIG.
Since our last report in September 2009, AIG's financial condition has remained relatively stable, as measured by several indicators, largely due to the federal assistance provided by the Federal Reserve and Treasury to assist AIG as a result of their determination that the company posed systemic risk to the financial system. Specifically, the Federal Reserve and Treasury have made more than $182 billion available to assist AIG since March 2008. As of December 31, 2009, the outstanding balance of the assistance provided to AIG was $129.1 billion, about $8.4 billion more than the balance on September 2, 2009. The federal assistance also appears to be facilitating a more orderly restructuring of the company. GAO's indicators show that, in general, the improvements in AIG's condition in the second quarter of 2009 continued into the third and fourth quarters due largely to ongoing federal assistance. Several indicators show that AIGFP has continued to unwind its credit default swap positions. AIGFP also has shown progress in unwinding its Super Senior credit default swap portfolio but has made less progress in reducing the remaining multi-sector collateralized debt obligations (securities backed by a pool of bonds, loans, or other assets) portfolio. Several indicators on the status of AIG's insurance companies illustrate that AIG's insurance operations are showing signs of recovery, but federal assistance has been a critical factor. For the first time since the second quarter of 2008, additions to AIG life and retirement policyholder contract deposits have exceeded withdrawals. AIG's property/casualty companies also have shown some improvements. AIG is continuing to repay its debt to the federal government, but much of the progress reflects the numerous exchanges of debt that AIG owed the Federal Reserve Bank of New York Revolving Credit Facility (facility) with various issues of preferred equity. As a result of this shift from debt to equity, which has occurred gradually, the authorized amount of the facility has decreased and the amount of preferred equity interests held in AIG and various special purpose vehicles for the government has increased. For example, as of December 30, 2009, the amount of assistance available to AIG through the facility had dropped to $35 billion and the amount AIG owed the facility had dropped to $23.4 billion, while the amount of equity or equity interest held by the government increased to almost $95 billion. Consequently, the government's exposure to AIG is increasingly tied to the future health of AIG, its restructuring efforts, and its ongoing performance. However, the sustainability of any positive trends in AIG's operations depends on how well it manages its business in this current economic environment. Similarly, the government's ability to fully recoup the federal assistance will be determined by the long-term health of AIG, the company's success in selling businesses as it restructures, and other market factors such as the performance of the insurance sectors and the credit derivatives markets that are beyond the control of AIG or the government. We will continue to monitor these issues in our future work.