Bailouts

We'll Soon Be Rid of AIG


The Water Street offices of American International Group in New York

Photograph by Timothy A. Clary/AFP via Getty Images

The Water Street offices of American International Group in New York

To borrow a line from the late Gerald Ford: My fellow Americans, our long, nationalized nightmare is (almost) over.

American International Group (AIG), the bailed-out insurer/ex-pyromaniac at the epicenter of the global financial meltdown, just posted a $1.86 billion quarterly profit, compared with the $4 billion loss it registered last year. The stat that most matters: Uncle Sam now owns just 16 percent of the company, with a complete disposal of its stake likely by the end of the year. The U.S. Treasury Department has recently been offloading hundreds of millions of shares—it sold $20.7 billion worth in September—after having owned as much as 92 percent of AIG in the wake of a government bailout that ballooned to $182 billion, including aid from the Federal Reserve Bank of New York.

If you’re to believe Treasury’s math—no small controversy there—taxpayers actually are in the black from the bailout. The U.S. profits off anything sold above its stated bailout per-share cost basis of $28.73, according to bank Drexel Hamilton. AIG stock now changes hands at $33, having surged 43 percent this year. That is less than half its book value (a measure of its assets minus liabilities) of just under $70 a share. The more of itself AIG repurchases from the government—and the more its business evolves back into bread-and-butter property-casualty, life insurance, and investing—the more it is thought its stock will approximate that book value. “The government ownership has been a real overhang for the company,” said Josh Stirling of Sanford Bernstein (AB), ahead of the quarterly earnings report.

“Taking action to stabilize AIG during the financial crisis was something the government should never have had to do, but we had no better option at the time to protect the American economy from the damage that would have been caused by the company’s collapse,” Treasury Secretary Timothy Geithner said in a September statement. “To stabilize and then restructure the company with a very substantial positive gain for the American taxpayer is a significant accomplishment, but we need to continue the critical task of implementing Wall Street reform so that the American economy is never put in this position again.”

AIG purchased $8 billion of its shares from the U.S. in the latest quarter. It now has a $57 billion market capitalization. While that value is 20,000 leagues above its crisis lows, it is Sea Monkey-like compared with what this company was pre-blowup.

AIG management has apparently regained enough confidence and self-determination to target next year for reinstating a dividend to shareholders. “I would see that as something we’d like to do in 2013 if our capital position is strong enough,” Chief Executive Officer Robert Benmosche said in a Friday conference call with analysts. “We won’t know that until the Fed has more time to review where we are.”

Speaking of which, AIG last month said it reached the final stage of a review to be designated a “systemically important” financial institution.

As if the nightmare of the past four years didn’t sufficiently establish as much.

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Farzad is a Bloomberg Businessweek contributor. Follow him on Twitter @robenfarzad.

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Companies Mentioned

  • AIG
    (American International Group Inc)
    • $51.64 USD
    • 0.64
    • 1.24%
  • AB
    (AllianceBernstein Holding LP)
    • $26.41 USD
    • 0.07
    • 0.27%
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