* Shares price at $32.50 apiece, for total proceeds of $7.6
* Total profit to government from AIG investment $22.7 bln
* TARP still owed some $38 bln, mostly automakers
* Analysts waiting on AIG valuation to rise
By Rick Rothacker and Jochelle Mendonca
Dec 11 The U.S. Treasury's sale of its remaining
stake in American International Group Inc will leave
taxpayers with a profit of nearly $23 billion - more than the
next three most successful bailouts combined.
The government's profit on the deal is a turnabout from what
was one of the most reviled bailouts of the financial crisis.
The 2008 rescue later spurred a senator to suggest top
executives at the insurer consider suicide. The Government
Accountability Office at one point suggested there was a real
chance taxpayers would never be repaid in full.
Yet they were, with $22.7 billion in total returns,
including the proceeds of the sale Treasury launched Monday
night, AIG said. The government provided AIG with some $182
billion of support.
"Thank You - We Did It," AIG Chief Executive Robert
Benmosche wrote in a memo to AIG staff on Tuesday. "Today
warrants a celebration like no other in AIG's history and places
well in the past a crisis none of us will ever forget."
Even with the windfall, the government will likely lose
money on its Troubled Asset Relief Program, the $700 billion
bailout launched in the darkest days of the crisis. Banks and
auto companies still owe taxpayers tens of billions of dollars.
The Treasury said its sale of about 15 percent of AIG's
stock would fetch $7.6 billion, after it sold 234.2 million
shares to investors for $32.50 each. (The Treasury also has
warrants it can sell to boost the government's profits down the
AIG shares rose 4.6 percent to $34.89.
HUGE DEBT REMAINING
Even with the profit on AIG, $38 billion in TARP funds have
yet to be recovered, the Treasury said.
According to the latest monthly report to Congress, some 237
banks still owe money under the Capital Purchase Program. While
that specific program is now profitable, the larger shortfall
for the whole program remains.
The biggest part of the shortfall is with the Automotive
Industry Financing Program, which disbursed funds to General
Motors, Chrysler and Ally Financial. That facility
disbursed $79.8 billion in funds and has recovered $40.9 billion
through the end of November.
Technically speaking, TARP will also take a loss on AIG.
Though as a whole the AIG bailout was profitable, the specific
block of shares acquired with TARP money came at a price well
above where that stock was ultimately sold.
To many, though, it is a distinction without a difference.
"It was an ugly process," said Greg Valliere, chief
political strategist with Potomac Research Group, but he added:
"Bottom line is that the government made money."
THOUGHTS OF SUICIDE
AIG was rescued just before it would have been forced to
file for bankruptcy as losses on risky derivatives mounted. It
was bailed out as the financial system stood at the brink of
disaster, shortly after Lehman Brothers filed for bankruptcy and
Merrill Lynch sold itself to Bank of America.
AIG was one of the Treasury Department's most hotly
contested bailouts. U.S. lawmakers began calling for Treasury
Secretary Timothy Geithner's resignation after it was revealed
the insurer paid $165 million in retention bonuses to employees
of the derivatives unit that has been blamed for the company's
financial distress at that time.
It prompted Republican lawmaker Charles Grassley to call for
AIG executives to resign or commit suicide, though the Iowa
senator eventually backtracked from those comments.
The company also funneled more than $90 billion of taxpayer
money - more than half the funds the government used to rescue
AIG - to various European and Wall Street banks, including
Goldman Sachs, Deutsche Bank and Barclays Plc.
DONE WITH ASSET SALES
With the bailout at an end, though, the company's asset
sales may also be over.
"At this point there aren't many pieces that are left. You
have the company you expect to have in the long term," Sandler
O'Neill analyst Paul Newsome said.
The company, which consists of its core U.S. life, global
property and casualty, and U.S. mortgage insurance units, will
now have to focus on turning around earnings at the property and
casualty business, formerly known as Chartis.
That business has higher loss ratios than its peers and has
been increasing premiums, as it and the rest of the industry
grapple with large catastrophe losses.
Last week, AIG said it would contribute $1 billion to its
U.S. property subsidiaries to help cover the $1.3 billion loss
its expects from Superstorm Sandy.
"This is an investment opportunity. They are trading at a
larger discount to book value than peers and we see them getting
to book value in a couple of years," Sanford C. Bernstein
analyst Josh Stirling said.
AIG trades at half of its book value, compared with property
and casualty peers Travelers Co and Chubb Corp
which trade above book value, according to Thomson Reuters
The Treasury share sale was jointly led by Bank of America
Merrill Lynch, Citigroup, Deutsche Bank,
Goldman Sachs and JPMorgan Chase & Co.