U.S. Treasury Secretary Timothy Geithner told a congressional oversight group June 22 that the federal bailout of American International Group in 2008 could cost the U.S. taxpayers money.

Timothy Geithner

“TARP investments in AIG will likely still result in some loss,” Geithner told the Congressional Oversight Panel, referring to the Troubled Asset Relief Program or TARP, which provided AIG with more than $180 billion in funding to keep it from imploding.

The treasury secretary did not indicate how much money the government might lose in his comments.

Geither’s assessment on AIG marks the first time an Obama Administration official has indicated that taxpayers may not recoup all loans to the insurer. From the time federal officials gave AIG its first infusion of cash, in September 2008, they suggested that the company’s operations, especially its property-casualty operations, would ultimately provide enough money to repay the loans in full, and possibly even lead to a profit for taxpayers.

Earlier this month, Federal Reserve Board Chairman Ben Bernanke said at a recent House Budget Committee hearing that the loan would be repaid in full and a profit to taxpayers remained possible.

However, the Congressional Oversight Panel, in a June 10 report, said the bailout creates an “extraordinary risk to taxpayers” and the group suggested the government may not receive full repayment.

AIG is “making progress in restructuring its operations,” Geithner told the panel, noting that the restructuring was intended to repay taxpayers and “reduce its risk to our economy.”

Geithner said the company is winding down its Financial Products subsidiary, the global insurer’s foreign division largely blamed for the company’s financial problems because of its investment in risky credit default swaps.

“AIG’s core businesses are generating profits,” Geithner added.

The company is continuing to try to divest itself of two of its largest foreign insurance subsidiaries, including its Asian life insurance division, American International Assurance, to the British firm, Prudential PLC. The $35 billion deal fell apart earlier this month when Prudential PLC sought a lower price.

Geithner said June 2 that the termination of the deal with Prudential PLC allows AIG to pursue “a bunch of other options.”

The Congressional Oversight Panel was created to oversee TARP spending authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. Panel members include J. Mark McWatters; Richard H. Neiman, superintendent of banks for the State of New York; Damon Silvers, policy director and special counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.