AIG regulation is critical to protect taxpayers, report says

WASHINGTON—Extensive regulation of American International Group Inc. is critical to protecting taxpayers, according to a report by the Office of the Special Inspector General for the Troubled Asset Relief Program.

In its quarterly report to Congress, SIGTARP discusses events at AIG since the insurance giant's near-collapse in September 2008 and the subsequent infusion of federal assistance that left the government initially holding a nearly 80% stake in the company.

According to the report, AIG is the largest TARP investment of the U.S. Department of the Treasury, with the government holding 61% of AIG common stock.

“Taxpayers are still owed more than half of the original TARP investment—a significant $36 billion of the $67.8 billion TARP investment,” according to the report. “According to the Treasury's TARP books and records, taxpayers have realized losses on the TARP investment from an accounting standpoint of $5.5 billion on Treasury's sale of AIG stock.”

But SIGTARP noted that because of the restructuring of the investments made by the Treasury Department and the Federal Reserve Bank of New York in January 2011, the government has made a gain so far in its AIG stock sales. This gain leaves $30.4 billion in TARP funds outstanding, according to the report.

“One vital concern for AIG (and any future regulator of AIG) is determining the proper level of risk to make a profit while minimizing the chance of failure,” the report said. “Although this is a continuing challenge for all companies, given its history, risk is of particular concern for AIG.

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“The decisions regulators make today about AIG will be crucial to protecting taxpayers in the future,” the report said. “Proper and effective supervision of AIG is just one of the many challenges regulators will face in the months and years to come. Effective, comprehensive and rigorous regulation of AIG is vital to ensure that history does not repeat itself and that taxpayers are protected.”

“At AIG, we welcome additional regulatory oversight which, combined with the discipline we have imposed on our company, only serves to make AIG much stronger,” a spokesman for AIG wrote in an email. “AIG also remains committed to making America whole, plus a profit. Working with the U.S. Department of the Treasury and the Federal Reserve, the total outstanding government support to AIG has decreased by approximately 83%, or by $152 billion.”

House Financial Services Committee Chairman Spencer Bachus, R-Ala., responded to the report by criticizing the government's handling of AIG.

“Regulators have done a poor job of overseeing AIG,” he said. “The government's mismanagement of AIG has enabled both the backdoor bailout of AIG's counterparties and massive bonuses to employees. The SIGTARP report today shows the management of AIG has not improved, the company remains "too big to fail,' no one is meaningfully watching AIG, and the government is not qualified nor should it assume the task of running one of the nation's largest insurance companies. Clearly, Treasury must make ending the government bailout and management of AIG a top priority.”