Today, the U.S. Department of the Treasury announced that it expects to receive an additional $750 million from its public offering of American International Group (AIG) common stock. The Wall Street underwriters have exercised their so-called over-allotment option to purchase another 24.6 million additional shares of AIG common stock at the public offering price of $30.50 per share.
On 3 August, Treasury agreed to sell approximately 163.9 million shares of AIG common stock at $30.50 per for expected proceeds of approximately $5.0 billion. The exercise of the over-allotment option increases Treasury’s take from the public offering to approximately $5.75 billion and the total number of shares sold in the offering to approximately 188.5 million.
Overall, the offering is expected to reduce Treasury’s remaining investment in AIG to approximately $24.2 billion, consisting of approximately 871.1 million shares of common stock; and reduce Treasury’s percentage ownership of AIG’s outstanding shares of common stock from 61% to 53%.
During the financial crisis, overall support for AIG through Treasury and the Federal Reserve totaled approximately $182 billion. After today when proceeds are received, the government’s remaining investment of approximately $24.2 billion would mean a nearly 87% reduction from that original $182 billion commitment.
In addition to principal repayments, the Federal Reserve and Treasury have also received additional income from interest, fees, and other gains. That additional income beyond principal repayments totals $14 billion, including approximately $13 billion from the Federal Reserve’s investment and approximately $1 billion from Treasury’s investment.
Today’s announcement is part of Treasury’s ongoing efforts to wind down the Troubled Asset Relief Program (TARP). Nearly 83% ($344 billion) of the $416 billion funds disbursed for TARP have already been recovered to date through repayments and other income – before including any expected proceeds from today’s announcement.
Ideologues will never admit it, but TARP is looking like an effective government intervention in the failed capital markets, keeping the economy from collapsing. However, little has been done to make sure that it does not happen again in the view of critics.