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U.S. sets price on sale of remaining AIG shares

The Treasury Department agrees to sell the remaining 234 million shares it received in the bailout of American International Group for $32.50 each.

December 11, 2012|By Jim Puzzanghera, Los Angeles Times
  • The Treasury Department agreed Tuesday to sell its remaining 234 million shares in AIG, which represented 15.9% of the company, for $32.50 each. The offering is expected to be completed Friday.
The Treasury Department agreed Tuesday to sell its remaining 234 million… (Mark Lennihan, AP )

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

The department agreed Tuesday to sell its remaining 234 million shares in AIG, which represented 15.9% of the company, for $32.50 each. The offering is expected to be completed Friday.

The sale, in effect, closes the books on a bailout that, at its height, left the government pledging more than $182 billion in taxpayer funds to rescue the firm in return for owning 92% of its shares.

"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.

"It marks one of the most extraordinary — and what many believed to be the most unlikely — turnarounds in American business history," Benmosche wrote.

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 the single 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, gaining $1.90 to $35.26 on Tuesday — enabled 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 sale will lead to a $5-billion profit, the department said. The Treasury Department will continue to hold warrants to buy 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," Millstein said.

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