By Colin Barr
January 14, 2011

Let no one say the government and AIG are dragging their feet on the road to their eventual separation.

The Treasury announced Friday the completion of the three-way transaction that repays all the Federal Reserve’s bailout loans to American International Group (aig) and leaves the Treasury with a $68 billion stake in the insurer – including 92% of its common stock.

The closing comes just over three months after the sides announced the outlines of the arrangement, which puts the government on the path to selling off the shares it received in what once was an $182 billion rescue of the most reckless player in the bubble-era world of structured finance.

It also comes a full two months ahead of Treasury’s deadline for closing the deal.

“Treasury welcomes the culmination of AIG’s recapitalization plan, which is a vital part of that company’s turnaround and puts Treasury in an excellent position to begin realizing value for taxpayers,” said Treasury Secretary Tim Geithner.

Geithner said Friday that he is optimistic the government will recoup every penny it invested in AIG. That statement would have been dismissed as foolhardy only a year ago, but Treasury last month managed to raffle off the last of its once-huge stake in Citigroup (c), a rescue that taxpayers ended up clearing $12 billion on.

“Today, AIG, with the support of countless people, has accomplished a huge goal that many people once thought impossible: completely repaying the Federal Reserve Bank of New York,” said AIG chief Bob Benmosche. “Now, we will continue to focus on strong business performance for the benefit of all of our stakeholders, including our largest shareholder, the Treasury Department.”

The good cheer wasn’t shared everywhere, however. AIG stock, which has nearly doubled over the past year (see chart, right) as the economy improved and Benmosche managed to bolster the insurer’s position, tumbled 5% in afternoon trading to $55.

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