By Paritosh Bansal
NEW YORK (Reuters) - American International Group Inc's talks with the U.S. Treasury Department over the repayment of taxpayer funds have advanced past initial discussions, a source familiar with the matter said on Tuesday.
A possible conversion of the Treasury's $49 billion preferred stake in AIG into common stock is one of the options being discussed, the source said, who declined to be named because the talks are not public.
AIG, which received a $182.3 billion U.S. rescue package after being bailed out two years ago, must first pay back its debt to the Federal Reserve Bank of New York.
AIG owes the Fed about $21 billion under a credit facility. The Fed also owns $25 billion worth of preferred interest in two of AIG's foreign life insurance units that must be monetized.
The company expects a big part of that money to come in by the end of the year, as it closes on the sale of American Life Insurance Co to MetLife Inc for $15.5 billion and lists American International Assurance (AIA) in Hong Kong.
AIA, which is planning an estimated $15 billion IPO next month in Hong Kong, named insurance industry veteran Marc de Cure as chief financial officer, sources told Reuters, marking a critical step before the listing.
The plan for the Treasury to exit AIG ownership could be rolled out as early as the first half of 2011, the Wall Street Journal reported.
This move would increase the government's ownership stake in the insurance company to above 90 percent from 79.8 percent currently, the Journal said.
"Our objectives remain the same: to repay taxpayers and position AIG over time as a strong, independent company worthy of investor confidence," an AIG spokeswoman said.
Last month, AIG Chief Executive Robert Benmosche told Reuters that AIG would begin negotiating an exit of the Treasury's equity stake once it clarified how the Fed's credit facility would be paid down.
Converting the Treasury's preferred stake into common shares has been seen as an option to end the government role in the insurer.
In March, a source told Reuters such a strategy would increase Treasury's equity in the insurer above its current 80 percent stake until the department could sell the shares.
AIG shares were off 1.7 percent at $36.29 in midday trading on the New York Stock Exchange.
(Reporting by Paritosh Bansal in New York and Sakthi Prasad in Bangalore; editing by Muralikumar Anantharaman and Andre Grenon)
