AIG still owes the Treasury $53.1 billion. In addition, the Fed has $23.6… (Mark Lennihan, Associated…)
Reporting from Washington — U.S. taxpayers got their first look at the potential payback from the bailout of giant insurer American International Group Inc., and so far it looks like a break-even proposition.
AIG, whose near-collapse in the fall of 2008 led to one of the biggest bailouts of the financial crisis, sold its first new stock offering since then, pricing 300 million shares at $29 each to raise a total of $8.7 billion.
The sale Tuesday included 200 million shares held by the federal government, which picked up $5.8 billion and lowered taxpayers' stake in the company to 77% from 92%.
Treasury Secretary Timothy F. Geithner said the sale was "an important milestone" in the Obama administration's attempts to sell its stake in AIG and recover bailout money.
"The decision to provide this assistance was exceptionally difficult, but it's clear today that it was essential to stopping a financial panic, preventing a severe economic collapse and helping save American jobs," Geithner said.
The government ended up with a small profit of about $60 million. The figure could rise if underwriters of the stock offering exercise their option in the next month to buy as much as 45 million more of the government's AIG shares.
Starting in the fall of 2008, AIG received a total of about $125 billion in a complicated, multistep bailout from the Treasury Department and the Federal Reserve, with the possibility at one point that the figure could have risen to $182 billion.
AIG has been paying back money as it sells some of its assets, such as 21st Century Insurance Co., a Woodland Hills auto insurer that AIG sold to Farmers Insurance Group in Los Angeles two years ago for $1.9 billion.
But AIG retains a strong Southern California presence with subsidiaries SunAmerica Inc. of Los Angeles, which sells retirement annuities, and International Lease Finance Corp. of Century City, which leases aircraft.
The Congressional Budget Office estimated in November that the Treasury Department would lose $14 billion on the AIG bailout. But Obama administration officials have expressed optimism that taxpayers would lose little, if any, money.
AIG still owes the U.S. Treasury $53.1 billion. In addition, the Fed has $23.6 billion in loans tied to the AIG bailout, backed by company assets. The Treasury Department hopes to continue selling stock over time to recoup all the money given to AIG from the Troubled Asset Relief Program, but has agreed not to sell any additional shares for the next four months.
The Treasury Department — and taxpayers — might have made a much larger profit had the offering taken place earlier this year when AIG's stock was trading at more than $50 a share. The shares have since tumbled, losing 39% year to date and closing Tuesday at $29.46, before the sale was announced.
But Obama administration officials were not regretting the timing, said Tim Massad, the Treasury Department's acting assistant secretary for financial stability.
"Two and a half years ago, nobody thought we'd get a dime back, so we're very happy," Massad said. "We didn't make these investments to make a profit in the first place.… We're hopeful we can recover all the investment we made, but whether we can will depend on market conditions going forward."
The AIG stock sale came as the Treasury Department and Chrysler disclosed Tuesday that the automaker had repaid $5.9 billion in bailout loans six years ahead of schedule.
Chrysler now has repaid $10.6 billion of the $12.5 billion in TARP funds it received in 2008 and 2009. The government had previously said it was unlikely to fully recover the remaining $1.9 billion.
The Treasury Department still owns a 6.6% stake in the company. On Tuesday, Chrysler also repaid $1.7 billion in bailout money to the Canadian government.
AIG and the Treasury Department completed a deal in January to start unwinding the U.S. government's ownership. The deal involved converting most of the preferred shares the government received as part of the bailout into nearly 1.7 billion shares of common stock.
That move, which gave the government a 92% stake, helped recapitalize the company so it could repay $47 billion it owed to the Federal Reserve Bank of New York. The Treasury Department was left with $20.3 billion in preferred stock and $47.5 billion worth of common stock.
Before Tuesday's stock sale, AIG had redeemed $9 billion of the preferred stock.
The stock conversion opened the door for the Treasury Department to begin selling its shares. The break-even price on the stock for taxpayers is $28.73 a share.
AIG probably was overvalued in January "and the financials have been weak anyway," said Scott Sweet, senior managing partner of IPO Boutique, a stock offering advisory firm.
Still, demand for the AIG offering started building late last week.
The pricing of Tuesday's stock offering is key for the government as it moves toward selling additional chunks of AIG stock in the coming months, Sweet said.
If the price is too high and drops in trading Wednesday, investors will be less enthusiastic the next time the government sells some of its shares, and that will make it more difficult to unwind the Treasury Department's ownership.
"If they want to do the second tranche and other tranches, and Obama has visions — albeit pie in the sky, in my opinion — that he'd like to spin this off by the end of 2012, this must be priced perfectly," Sweet said.