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Feds say AIG stock sale locks in minimum $12.4-billion profit

September 11, 2012|By Jim Puzzanghera
  • A car speeds past AIG's financial products offices in Wilton, Conn.
A car speeds past AIG's financial products offices in Wilton, Conn. (Stephen Chernin / Associated…)

WASHINGTON -- The government's sale of about $18 billion shares of stock in rescued insurance giant American International Group locks in a minimum $12.4-billion profit for taxpayers on one of the most controversial bailouts of the financial crisis, the Treasury Department said late Monday.

The sale, which priced Monday at $32.50 a share and will be completed this week, will reduce the government's remaining stake in AIG to 21.5% from 53.4%, Treasury said.

Taxpayers will no longer be majority shareholders of the company. But the sale also will reduce to about $5.3 billion the amount owed by AIG to the government from the approximately $130 billion it received in bailout money.

Combined with the $17.7-billion profit made by the Federal Reserve Bank of New York after it closed out its part of the complex bailout last month, that means taxpayers will earn at least a $12.4-billion profit on a rescue that many analysts had predicted would never come close to being repaid, Treasury said.

The government's profit likely will be more as the $5.3 billion outstanding from the bailout is in the form of stock worth about $10 billion, given AIG's Monday closing price of $33.30 a share. 

“Taking action to stabilize AIG during the financial crisis was something the government should never have had to do, but we had no better option at the time to protect the American economy from the damage that would have been caused by the company’s collapse,” Treasury Secretary Timothy F. Geithner said in announcing the profit.

He added that "to stabilize and then restructure the company with a very substantial positive gain for the American taxpayer is a significant accomplishment."

AIG Chief Executive Robert H. Benmosche said the latest sale of the company's stock by the Treasury -- the largest to date -- "makes America whole on its investments in AIG plus a profit."

“We are close to achieving what most outside AIG thought unimaginable," he said. "The people of AIG never lost faith, kept working, and are grateful for being given the chance to make good on this goal.”

But the profit earned on the government's investments doesn't offset the harm the AIG bailout caused in creating an expectation that companies could engage in risky behavior and be rescued by taxpayers, said Neil Barofsky, the former special inspector general for the $700-billion Troubled Asset Relief Program bailout fund.

In addition, taxpayer money to AIG helped bail out some large banks, which were able to recover all the money owed to them for credit default swaps they had purchased from the insurance company.

"While it's certainly good news, it does not detract from the loss of faith in government that the generous terms of the bailout of AIG's counter parties generated, and the lasting impact on our financial system from the moral hazard that accompanied it," Barofsky said of the profit announcement.

With AIG close to bankruptcy in September 2008, the U.S. government stepped in to bail out the company to avert a potential meltdown in financial markets. The Treasury and Fed ultimately pledged more than $182 billion to AIG in exchange for a 92% ownership stake as part of a complex, multi-step bailout.

The bailout provoked outrage, particularly after it became known in early 2009 that some of the AIG employees who made the risky bets that brought the company to the brink of failure were in line for large bonuses.

AIG did not use all the money and its fortunes have improved as it began selling off some  assets and restructuring the company. Its stock price is up nearly 44% this year.

As the government began unwinding its stake, the Government Accountability Office estimated in May that taxpayers could end up making a $15.1-billion profit on the bailout.

White House Press Secretary Jay Carney said Monday that the Treasury Department did not time the latest AIG stock sale so the bailout would turn a profit before President Obama faces reelection in November.

"The principles behind exiting investments like the ones in AIG or in General Motors have been that we have been committed to exiting those investments as quickly as practicable, but always with a mind to taxpayer interests," Carney said.

He added, "I think that it’s safe to say that the president is pleased with the progress being made as we wind down these investments and recover taxpayer money."

ALSO:

U.S. to sell more of its AIG stake

Fed says taxpayers earned $17.7 billion from AIG bailout

U.S. bailout of AIG may net an estimated $15.1-billion profit  

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