U.S. Treasury Sells Final Shares of AIG Common Stock. Taxpayers Earn $22.7 Billion! More Profits to Come from the Bailout

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In just three months, five trillion dollars of Americans’ household wealth evaporated during the waning months of the Bush Administration. Economic activity and trade around the world ground toward a halt. We are still feeling the negative effects, but the Obama Administration bailout worked to head off another Great Depression. Should Treasury have demanded even more shares in return for financing Wall Street companies?

The U.S. Department of the Treasury announced today that it would sell all of its remaining 234,169,156 shares of American International Group or AIG common stock at $32.50 per share in a public offering. The proceeds to Treasury from the common stock sale are expected to total about $7.6 billion.

Along with today’s stock sale, the return to date on the Federal Reserve and Treasury’s combined $182 billion commitment to bailout AIG during the financial crisis is now $22.7 billion. Treasury has earned a positive return of $5 billion and the Federal Reserve has posted a profit of $17.7 billion. One large taxpayer subsidy caveat here, though, the calculation doesn’t include the cost of the losses that AIG was allowed to carry forward even with government assistance. The Fed left too much money on the table.

Ideologues still refuse to admit that the TARP and associated government actions to preserve some liquidity in the failed private capital markets saved the U.S. and global economies from far worse consequences. The bailouts without question saved the U.S. auto industry, and this includes many companies that did not require loans but were dependent on the health of the industry. However, little has been done to make sure that the reckless practices of  the plutocrat CEOs of Wall Street, banks and holding companies, hedge funds and other financial firms does not happen again in the view of critics. The bailouts were indeed profligate, they could have been done at a much lower cost to taxpayers and a much higher cost to the owners of the businesses that were in trouble. Now, if it happens again, we need to make sure the guilty are punished, not innocent workers with a W2 form.

As part of its overall $5 billion profit to date, Treasury earned a $4.1 billion positive return on its common stock holdings and a $0.9 billion positive return on its preferred stock holdings. Included in the Federal Reserve’s $17.7 billion positive return to date is a $6.8 billion earnings on the Federal Reserve Bank of New York’s (FRBNY) loans to AIG; a $1.4 billion positive return on preferred interests in the AIA Aurora and ALICO agreements that held AIG’s largest foreign life insurance subsidiaries; and a combined $9.5 billion positive return on the Maiden Lane II & III deals.

The combined profit of $9.5 billion from the Maiden Lane II and III special purpose vehicles, which purchased mortgage-related assets from AIG and its counterparties, represented the largest portion of the overall $22.7 billion positive return.

Over the last 19 months, Treasury has been through six public offerings of AIG common stock, selling 1,655,037,962 shares – originally 92% of AIG’s outstanding common stock- at an average price of $31.18 per share. Treasury’s $20.7 billion AIG common stock offering in September 2012 alone represented the largest single U.S. common stock offering in history.

After the closing of today’s offering, Treasury will continue to hold warrants to purchase approximately 2.7 million shares of AIG common stock – the sale of which will provide an additional profit to taxpayers.

Today’s sale is part of Treasury’s ongoing efforts to wind down the Troubled Asset Relief Program (TARP), which had its roots in the Bush Administration and was enlarged under President Obama that saved the U.S. economy from a deep depression. More than 90% ($380 billion) of the $418 billion funds disbursed for TARP have already been recovered to date through repayments and other income such as interest. For more details on Treasury’s lifetime cost estimates for TARP programs, see Monthly 105(a) Report to Congress on TARP at this link.

AIG Bailout

Max Commitment

Repayments, Canceled/Reduced Commitments, Interest/Fees/Gains

Return

Federal Reserve

$112.5 billion

$130.2 billion

+$17.7 billion

 Fed Loans to AIG (1)

$35.0 billion

$41.8 billion

+$6.8 billion

 AIA/ALICO SPV,
Preferred Interests

$25.0 billion

$26.4 billion

+$1.4 billion

 Maiden Lane II & III

$52.5 billion

$62.0 billion

+$9.5 billion

Treasury

$69.8 billion

$74.8 billion

+$5.0 billion

   Common Stock

$47.5 billion

$51.6 billion

+$4.1 billion

   Preferred

$22.3 billion

$23.2 billion

+$0.9 billion

Total

$182.3 billion

$205.0 billion

+$22.7 billion

(1) The original $85 billion commitment was reduced to $60 billion in November 2008 in connection with the $40 billion TARP investment in AIG. The credit facility commitment was further reduced to $35 billion in December 2009 in connection with AIG’s transfer of the AIA Aurora LLC and ALICO Holdings.

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About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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