Government Will Be Out of AIG Quickly: CEO

The U.S. Treasury will wind down its stake in American International Group quickly, paving the way for the company to pay a dividend, Robert Benmosche, AIG CEO, told CNBC’s "Closing Bell" on Tuesday.

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On Sunday, the Treasury Department said it will sell most of its remaining stake in the insurer. With the exercise of a $2.7 billion over-allotment option, the $20.7 billion offering will take the Treasury's AIG stake to about 16 percent from 53 percent currently. (Read More: US Treasury Expects $15.1 Billion Profit From AIG Bailout.)

“We think [the Treasury] can then sell the rest into the market without a big offering,” the AIG executive said, adding it will be up to them to determine the timing.

But after a two-month lockup, Benmosche expects the government to sell down its stake as quickly as possible.

“Once the Treasury is sold out we’re in a position to pay a dividend to our shareholders,” he said. Although Benmosche didn’t put a date on when it may start paying a dividend, he said “Strategically, we should have a dividend on this stock.”

“As long as we have good operation earnings, we run the company the right way, we have a strong capital base and we maintain capital flexibility, then we have all the flexibility in the world (to buy back stock and pay a dividend),” Benmosche said. He also noted the company has $11.5 billion in cash.

Turning to future asset disposals, Benmosche said they are still working on a sale of the aircraft leasing business. “The markets are note ready for an IPO of an aircraft leasing business,” given the concern surrounding the industry, he said.

AIG is also considering closing down its bank, but not to avoid Federal Reserve oversight. Benmosche said AIG wants Federal Reserve regulation. However, the bank will be closed because of the Volcker Ruleprohibiting proprietary trading, he said.

“As a rule, it doesn’t work for insurance companies as it works for banks. Some of the investments they want to prohibit an insurer has to make because of our long-term liabilities,” he said.