THE US government took a major step towards ending two years of taxpayers’ assistance to AIG, clinching a deal that could enable the US Treasury to sell its huge stake in the insurer at a profit.

The move sent AIG shares higher amid investors’ hopes that the company will re-emerge as a standalone entity after 24 months as a ward of the state. It boosted the US government’s chances of recovering for taxpayers the unprecedented amount of aid doled out to the corporate sector during the crisis. Tim Geithner, US Treasury secretary, said the plan would substantially speed up AIG’s repayment of the $182 billion it received during the crisis.

“The exit strategy dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company,” he said.

His comments come almost two years since Congress approved a $700 billion rescue fund to prop up the financial system. Officials are increasingly confident they will make a profit on the bail-outs used to save companies including Citigroup and General Motors.

The deal will see the US Treasury exchange its $49.1 billion in preferred shares into a 92.1 per cent stake in AIG to be sold in the coming months. AIG shareholders will receive warrants to buy more shares to cushion the blow of the significant dilution caused by the Treasury’s conversion.

The New York Federal Reserve, which has lent AIG $20 billion and is entitled to $26 billion from the sale of the insurer’s assets, will be repaid by the end of March 2011, leaving the Treasury as the company’s sole government paymaster.