American International Group Inc. repaid the last $21 billion it owed on a Federal Reserve credit line and swapped the Treasury Department’s preferred stake for common stock as the U.S. unwinds its investment in the company.

Treasury now owns 1.66 billion shares of New York-based AIG, or about 92 percent of the company, and will sell the securities to repay an investment of about $49 billion through the end of last year, the regulator said in a statement today. Treasury’s investment climbed to $68 billion as it helped AIG meet obligations to the Fed.

“We have to stand on our own and meet the expectations of the marketplace,” Chief Executive Officer Robert Benmosche said in a separate statement. The insurer will “demonstrate through our actions going forward that we are worthy of investor confidence,” he said.

AIG is working to replace government funds with private capital after selling assets to help repay the Fed. The company raised $2 billion selling bonds on Nov. 30, its first debt sale since the 2008 rescue that swelled to $182.3 billion.

“If you think back one year or two years ago, there was no way that AIG could have raised, you know, $2 in the market, let alone $2 billion,” Chairman Steve Miller said in a Nov. 14 Bloomberg Television interview. “Now the markets are open, investors have confidence.”

Citigroup, GM

Treasury has been scaling back investments acquired in bailouts during the financial crisis. The department sold $10.5 billion of Citigroup Inc. shares on Dec. 6 and received $13.6 billion from a November offering of General Motors Co. stock.

Treasury will recover the $49 billion if shares are sold at an average of about $29 each. The additional Treasury investment may be repaid with proceeds of asset sales.

AIG slipped $3.04, or 5.3 percent, to $54.15 at 12:34 p.m. in New York Stock Exchange composite trading. The insurer has gained about 90 percent in the past year. The company will pay a dividend of about half a warrant per share next week to private investors. The 10-year contracts, which allow investors to purchase a share for $45, fell $2.16 to $20.02.

Treasury interviewed banks this week to select underwriters to divest the AIG shares, according to a person with knowledge of the plan. The Fed retains a stake in mortgage-linked securities it purchased from AIG in 2008.

Bailed Out

AIG was first rescued by the Fed in 2008 after the firm was unable to meet obligations on contracts that protected banks against losses on investments tied to subprime mortgages. The bailout was revised at least four times to make more funds available, lower interest payments and give the company additional time to sell assets. Today’s transactions are part of a plan announced in September.

“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 Timothy F. Geithner in today’s statement.

AIG divested a majority stake in AIA Group Ltd. in October for $20.5 billion and sold American Life Insurance Co. in November to MetLife Inc. for $16.2 billion. Proceeds from those sales will help pay down the company’s obligations.

Fed Chairman Ben S. Bernanke said AIG’s insurance units made the bailout a safer bet than it would have been to prop up Lehman Brothers Holdings Inc., the securities firm that was allowed to fail a day before AIG’s rescue.

AIG subsidiaries have “a lot of value, and that was the basis on which we made the loan,” Bernanke told the Financial Crisis Inquiry Commission in September. Lehman’s “going-concern value was melting away because its customers, its counterparties, its employees and so on were not going to be sticking with this firm.”