American International Group’s offices are shown Tuesday, Oct. 7, 2008 in New York.Mark Lennihan/The Associated Press
It's not easy to celebrate the anniversary of the financial meltdown. American International Group, however, is providing reason for a muted cheer. Uncle Sam is ceding control of the giant insurer four years after a rescue that eventually put taxpayers on the hook for $182-billion (U.S.). The planned sale of AIG shares should net a profit, too. But exuberant political messaging would create the wrong impression about bailouts.
Over the weekend, the U.S. Treasury said it could sell as much as $20.7-billion of its AIG common shares if underwriters exercise an overallotment option. That would slash the government's stake to 15 per cent from the current 53 per cent – and 92 per cent in the aftermath of the crisis. Given the horror show AIG was, it's a turnaround nearly impossible to have foreseen at the end of 2008.
AIG's recent good fortune helped make the latest offering possible. The shares have gained by nearly half this year and are trading around $33, comfortably above Treasury's breakeven price of about $29. And AIG's partial sale of its AIA stake last week will help it buy back about a quarter of the government's shares on offer.
Any surplus for taxpayers will be nice, but still represents a comedown from when AIG shares were trading more than $60 last year. Moreover, the sale must be considered in the context of other failed firms shepherded by President Barack Obama. While AIG is on track to join the ranks of big banks who returned taxpayer money and then some, there are still some big losers.
Housing agencies Fannie Mae and Freddie Mac remain a mess. They still owe taxpayers $188-billion, more than AIG's lifeline. General Motors and its former credit arm, Ally Financial, owed a combined $42-billion through the troubled asset relief program (TARP) as of June, according to the special inspector general for the government bailout program. Finally, though taxpayers may be earning a return on TARP on a crude money-in, money-out basis, such claims disregard the cost of money and its value over time.
Politicians should temper any enthusiastic claims about the AIG accomplishment. Excessive crowing risks clouding the hazards of government intervention in the first place. The stock sale fete is worthy of a cupcake but not champagne.