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Sale of last AIG shares brings U.S. bailout profit to $22.7 billion

December 11, 2012|By Jim Puzzanghera
  • Robert Benmosche, chief executive officer of American International Group Inc. speaks during an event hosted by the American Chamber of Commerce in Seoul.
Robert Benmosche, chief executive officer of American International… (Seong Joon Cho / Bloomberg )

WASHINGTON -- The Treasury Department said Tuesday it would raise $7.6 billion in the sale of its final shares of American International Group, ending the controversial bailout of the insurance giant with a $22.7-billion profit.

The department agreed to sell its remaining 234 million shares in AIG, which represented 15.9% of the company, for $32.50 each. The sale in effect closes the books on a rescue that at its height had the government on the hook for more than $182 billion and owning 92% of the company.

The offering, which was announced Monday, is expected to be completed Friday.

"The closing of this transaction will mark the full resolution of America's financial support of AIG -- with a profit to taxpayers of $22.7 billion to date," AIG Chief Executive Robert Benmosche wrote in an email to company employees Tuesday.

Quiz: The year in business

"It marks one of the most extraordinary -- and what many believed to be the most unlikely -- turnarounds in American business history," he continued. "And you did it."

Despite the bailout's profit, critics note the huge toll it took on public confidence in the financial system and the precedent it helped set for government intervention to protect companies deemed too big to fail.

"The bailout was an enormous cost to this country," said Phil Angelides, who headed the government's Financial Crisis Inquiry Commission.

Since 2008, AIG has been selling assets to raise money to repay the government and stabilize the company's finances.

Bad bets on the housing market brought AIG to the brink of bankruptcy in September of that year, helping fuel the financial crisis and drawing an unprecedented effort by the Federal Reserve and the Treasury Department to keep the company afloat.

The bailout was one of the largest of the crisis and fueled outrage and resentment from the public, Congress and government officials. Fed Chairman Ben S. Bernanke said no single episode involving the near meltdown of the financial system made him more angry than having to help bail out AIG after its risky behavior.

AIG ended up using about $125 billion of the money promised to it. After the company was stabilized, the Fed and the Treasury Department began the long process of unwinding the complex bailout.

"Since the financial crisis, AIG has undertaken a dramatic restructuring effort, which put it in a stronger position to repay taxpayers," the Treasury Department said in a statement Tuesday. "The size of the company has been cut nearly in half as it sold non-core assets and focused on its core insurance operations."

The improvements -- AIG's stock price is up 44% this year -- allowed the government to end the bailout more quickly than expected.

In August, the Federal Reserve Bank of New York sold the last of the asset-backed securities it acquired from AIG as part of the bailout. The Fed turned a profit of $17.7 billion on its part of the complex bailout.

The Treasury Department began selling its shares of the company in early 2011.

This week's offering was the sixth, and the sale will lead to a $5-billion profit, the department said. The Treasury Department will continue to hold warrants to purchase about 2.7 million shares of AIG stock, and selling those warrants could generate more money.

"No taxpayer should be pleased that the government had to rescue this company, but all taxpayers should be pleased with [the] announcement, ending the largest of the government's financial industry bailouts with a profit to the Treasury Department," said James Millstein, a former Treasury official who oversaw AIG's restructuring from 2009 to 2011.

"The people of AIG who worked hard the past four years to repay the taxpayers' investment should be very proud of this accomplishment," he said.

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