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Moody's - AIG ready for Fed exit

Monday 24 January 2011 - by Andrew Hickley

Ratings agency Moody's has recommended that the US government reduces its ownership in AIG, arguing that the revived insurer would benefit from showing the market that it can "stand on its own".

The statement follows an AIG grand recapitalisation last week, where the firm restructured its overall finances and used cash to pay off all $21bn (€15.4bn) owed to the Federal Reserve Bank of New York.

With the move praised by the likes of former FRBNY chairman and current secretary of the Treasury Timothy Geithner, Moody's argues that a cutback in Treasury involvement would be "credit positive" by allowing the firm demonstrating it is not reliant on government support.

"Given that AIG has stabilized its core businesses, substantially divested or de-risked its noncore businesses, and established independent funding sources, we believe that a sell-down of the Treasury ownership stake would be credit positive," said Bruce Ballentine, Moody's VP-Senior Credit officer.

"Government ownership and support were critical in helping AIG to withstand the credit crisis of 2008-09. But at this stage, we believe that institutional clients and distributors would welcome a reduction in the government's role."

Moody's recently upgraded its view on Moody's finances, upgrading them to 'stable' from 'negative' upon news on the progress of the capitalisation.

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