Four years ago, in the teeth of the U.S. financial crash, the U.S. Treasury Department bailed out insurance giant American International Group (AIG) to the tune of $182 billion. It essentially bought the company, at one point owning more than 90 percent.
Since then, AIG’s seen something of a turnaround, and the government is selling off part of its stake in the company. The Treasury plans to sell $18 billion worth of AIG shares, The Wall Street Journal reports.
Marketplace’s David Gura has been following the story from Washington.
Stacey Vanek Smith: Why is the federal government doing this now?
David Gura: The government said from the start that it did not want to be a long-term shareholder of AIG or any of the companies it bailed out, for that matter. The government said it wanted to get out as soon as it could and hopefully break even. Now it looks like in this case the government will actually make a profit.
I talked to Karen Petrou, with Federal Financial Analytics, and she says that is beside the point: “If Treasury makes money, that is no validation for a policy,” Patrou said. “It just means that it isn’t as bad as it could have been.”
She says profitability should not be the metric we use to measure the success of these “emergency actions,” The government took during the financial crisis.
As far as timing goes, the government has been pointing to many of these bailouts, saying they have been big success stories. Think GM. The narrative is: “Yes, taxpayers bailed out these companies, but many of them have turned around.”
Now of course, here we are in the final stretch of a presidential campaign — the timing of the sale could be coincidence but there are plenty of critics saying the administration is trying to use this sale to its political advantage. But Karen Petrou told me, remember, AIG was bailed out during the Bush administration, not when President Obama was in office.
Vanek Smith: So what happens now with the sale?
Gura: The Treasury Department is going to offer $18 billion of AIG common stock. Remember, it has done this four times already. The first time was back in May of 2011. But this is going to be the biggest offering so far. The government stake could go down to as little as 15 percent. And AIG says it plans to buy back “up to $5 billion” worth of stock.
Vanek Smith: What does this say about the health of AIG?
Gura: When the U.S. government took out this big stake four years ago this company was on the brink of collapse. It was in really bad shape. Now, AIG is doing a lot better and it is taking bets that aren’t as risky.
I just spoke with Bert Ely, who is a banking analyst, and he said today AIG is doing much better. “Its problems have been addressed,” Ely noted. “A lot of the toxic assets that it had owned have been disposed of or liquidated. “
And it has slimmed down some; It has sold off some of its operations. It’s really re-focused. It’s become a smaller company specializing in property insurance and life insurance. The big takeaway here is AIG has been profitable several quarters in a row.
For more on the stock sale, Marketplace host Stacey Vanek Smith also spoke with Jim Millstein, the former Chief Restructuring Officer at the U.S. Department of the Treasury who managed the AIG bailout.
“AIG is a smaller company, a more manageable company, a less risky company today than it was when it first knocked on the Federal Reserve’s door seeking help,” Millstein said, adding the U.S. could make about $20 billion in profit from the bailout. “So it may still be big, but it’s not too big to fail anymore.”
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.