A plan is in the works for AIG to cut ties with the government and pay back taxpayers, reports The Wall Street Journal. The insurance giant has received some $182 billion in bailout funds since 2008. The focus here is whether the AIG deal is good for taxpayers and whether it's possible for the government to recoup money on its massive "investment."
Why Is AIG Still Such a Zombie? "Of all the government bailouts, AIG was the worst one," explains Connie Madon at Blogging Stocks. "In the heyday of the housing bubble, AIG insured billions in shaky loans, loans that blew up when the housing bubble burst. As a consequence, the government has shifted $182.3 billion of taxpayer money into AIG to keep it afloat. Now, two years later, the government is looking for ways to get its money back."
- The Plan The New York Times' Dealbook explains: "The Treasury department may convert $49 billion in A.I.G. preferred shares it owns into common shares...This move would increase the government's ownership stake in the insurance company to above 90 percent, from 79.8 percent currently, The Journal said. However, after the conversion, the common shares would be sold off to private investors in a phased manner, a move that would reduce U.S. ownership and potentially earn the government a profit if the shares rise in value."
- The Upside "If it could be pulled off, an exit would be seen as a victory for the government and the company," explain Serena Ng and Deborah Soloman
at The Wall Street Journal. "AIG is the biggest recipient of government
aid from the crisis and has been a lightning rod for critics who have
questioned officials' decisions in rescuing and overseeing it."
- This Plan Is Terrible, writes Yves Smith at Naked Capitalism: "Why should the government swap out of preferred, which pays a dividend (well, is supposed to pay a dividend when and if earned) for common when the equity sales are not imminent? This is simply yet another sop to AIG. This latest scheme is being positioned as a way to accelerate repayment, when it's another version of extend and pretend... An investor doesn't simply want to get his money back; he wants a suitable risk adjusted return. That would have been 11.5% for the first two years of the loan. AIG won't provide anything resembling either proper compensation or a Bagehot-style penalty rate."
- Either Way, This Could Take a While, adds The Wall Street Journal: "A successful exit from AIG for the Treasury Department would take several years and is far from certain, depending on, among other things, market conditions and the company's ability to convince investors it can generate consistent profits from its core insurance businesses. Those will mainly consist of a global property and casualty insurer and a U.S. life insurance and retirement services business, which AIG hopes can together produce $6 billion to $8 billion in annual earnings."