Fed nets $17.7 bn profit from AIG bailout

The US Federal Reserve said Thursday it had sold the last of its investment in insurer AIG, turning a $17.7 billion profit for the public from its 2008 bailout. The New York Fed's final sale of its American International Group-related assets made a net gain of about $6.6 billion, the central bank announced. "The total net profit to taxpayers from the New York Fed's assistance to AIG and AIG-related facilities was $17.7 billion," it said in a statement. "The completion of the sale of the Maiden Lane III portfolio marks the end of an important chapter -- our assistance to AIG -- that was undertaken to stabilize the financial system in the midst of the financial crisis," William Dudley, president of the New York Fed, said. "I am pleased that we were able to achieve our principal goal, which was to protect the US economy from the potentially devastating effects of AIG's failure, while demonstrating sound stewardship of taxpayer interests." AIG, once the world's largest insurance company, was closely involved in the risky derivatives at the center of the 2008-2009 financial crisis. The Fed and the US Treasury rescued it from bankruptcy with a record $182 billion bailout. As part of the financial market bailout, the Fed took unprecedented actions, creating three limited liability companies known as Maiden Lane, to absorb toxic assets from AIG and other financial institutions at risk. The first Maiden Lane was created to help the merger of JPMorgan Chase and Bear Stearns; the remaining two were aimed at easing capital and liquidity pressures on AIG, which was reeling under soured bets after the collapse of US housing market bubble. Over time the Fed has recovered its loans to the Maiden Lane companies and also sold off the assets they held. Maiden Lane III repaid its loan, including interest, finally on June 14. The final sale of Maiden Lane III assets Thursday closes the Fed's involvement in AIG. The Treasury still holds a 53 percent stake in AIG's capital and plans to gradually sell its shares in an effort to recover the $24.2 billion remaining in its investment. Given that AIG shares closed at $33.76 Thursday, up 47.1 percent from a year ago, the Treasury may be able to turn a profit on its rescue. Under Fed rules, the central bank hands over the bulk of its profits to the Treasury.