Extraordinary responsibility must produce extraordinary results. With an acute understanding of its responsibility to the United States after the financial sector collapsed in 2008, AIG turned the help it received into a profit for the federal government, completing one of the greatest turnarounds in corporate history.
In the years leading up to 2008, a small division within AIG provided extensive support to financial firms via credit default swaps. These swaps were purchased by investment banks to guarantee the value of mortgage-backed securities they created. When sub-prime loan defaults accelerated, the valuations of these swaps dropped by billions of dollars, threatening banks worldwide.
The swap agreements required AIG put up collateral to guarantee it could pay back a claim. When credit agencies such as Moody’s Investors Services and Standard & Poor’s cut AIG’s rating, AIG was forced to put up more collateral. The sudden need for more funds threatened not only AIG but also the banks that were suffering massive losses.
The Federal Reserve and the U.S. Treasury recognized the issue and stepped in. AIG had over $1 trillion in assets, and the Fed recognized that the rest of AIG was strong. All told, government assistance reached $182 billion.
In an effort to repay the government rapidly, AIG began selling off profitable insurance businesses, as well as real estate. Meanwhile, the international companies under AIG’s umbrella reassured customers that they could meet insurance needs while the U.S. mortgage crisis reached its nadir.
In 2009, newly appointed CEO Bob Benmosche proclaimed that the best way forward for the company was to rebuild by focusing on customers. Benmosche’s strategy worked. By fiscal year 2010, AIG’s net income had reached nearly $8 billion. Meanwhile, the Fed and the Treasury began to sell the stock it owned in AIG. In December 2012, the Treasury sold its remaining 234 million shares of AIG common stock—not only completing AIG’s repayment, but also netting a total profit of $22.7 billion to taxpayers.