Treasury cuts AIG stake
News broke Sunday that U.S. Treasury Department would sell at least $18 billion of its holdings in A.I.G to slash the government’s stake. This would make the first time that less than half the company was publicly owned since its bailout four years ago, a step that’s timing may be well calculated in the election cycle.
Michael de la Merced wrote in the New York Times:
Taking the government’s stake in A.I.G. below 50 percent is the realization of a long-held goal by both the Obama administration and the company, helping to cut ties to one of the most controversial bailouts of the 2008 financial crisis. The Treasury Department expects to earn a profit on its investment in A.I.G., though it is unclear how large.
The stock closed at $33.99 Friday, above the government’s break-even price of $28.73, the Times said. The offering will be the fifth A.I.G. sale by Treasury and follows the announcement last month that the Federal Reserve Bank of New York sold the last of bonds purchased from the insurer. The Times reported that sale yielded $9.4 billion for the government.
As the Wall Street Journal’s Damian Paletta, Erik Holm and Serena Ng wrote in today’s coverage, the unpopular bailout was a rallying point for both sides of the political spectrum:
But the fury spawned by the rapid series of bailouts, typified in some ways by that of AIG, would eventually run wide. The government’s extraordinary intervention in the economy helped seed the tea-party movement on the right. On the left, it helped spawn the Occupy Wall Street movement, which among other things contended the government propped up bankers but did less for struggling homeowners.
A near-exit by the government from one of the most controversial bailouts is both a significant accomplishment for the Obama administration and a sign of how far the markets have come in four years, thanks in part to the rescue of financial companies and the Fed’s efforts to support the economy by reducing interest rates.
But the sale could also renew complaints that Treasury still hasn’t outlined a concrete strategy for exiting other large financial-crisis investments, such as those in mortgage investors Fannie Mae and Freddie Mac and lender Ally Financial Inc. The government remains in the red on its investments in Fannie and Freddie, which have received $188 billion in taxpayer support. The U.S. continues to hold sizable stakes in General Motors Co. and Ally that it spent $68 billion on and may not fully recover.
Treasury said the sale’s timing had nothing to do with politics, but it’s hard to believe that given where we are in the election cycle that being able to point to a profit from the bailout wasn’t part of the consideration.
Either way, the government’s exit is a win-win for A.I.G. It helps establish a true market value and repays taxpayers. No matter where you stood on the original investment, it can be considered a success based on the profit generated and the stability created. No matter what the timing, every time government funds are repaid it’s one step closer to moving past the financial crisis.