U.S. is selling rest of its stake in AIG
The U.S. Treasury said it is selling the rest of its stake in American International Group Inc., in effect closing the books on one of the biggest and most reviled bailouts of the financial crisis that engulfed the world four years ago.
The sale of the Treasury Department’s remaining 234 million shares in an offering announced Monday would wipe out the government’s 15.9% stake and pad the $15.1-billion profit it has made already from the giant New York insurer.
The Treasury Department still would hold an undisclosed number of warrants in AIG, but taxpayers no longer would own a piece of a company that came to symbolize Wall Street’s wild risk-taking during the subprime housing boom.
“In some ways, the AIG collapse was emblematic of the reckless and the deregulatory atmosphere that led up to the crisis,” said Phil Angelides, who headed the government commission that investigated the causes of the crisis.
Although the bailout of AIG and the nation’s major banks technically turned a profit, critics have said it took an enormous toll on the economy, fueled public anger and showed that some financial institutions were too big to fail.
AIG was at the top of that list.
Its Financial Products division sold billions of dollars in insurance in the form of credit-default swaps and other complex derivatives to companies, which were hedging their investments in the housing market.
When housing collapsed, it threatened to take AIG with it and wipe out conventional life, auto and home insurance policies of millions of customers in the U.S. and around the world.
“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Federal Reserve Chairman Ben S. Bernanke said during a House hearing in early 2009.
“AIG exploited a huge gap in the regulatory system,” Bernanke said. “There was no oversight of the Financial Products division. This was a hedge fund basically that was attached to a large and stable insurance company.”
As AIG teetered on the brink of bankruptcy after the collapse of investment bank Lehman Bros. in September 2008, the Fed swooped in to the rescue. It used emergency powers that Congress later eliminated in the 2010 overhaul of financial regulations.
In the panic of the crisis, U.S. officials feared AIG’s failure would have seismic ripples through the global financial system.
The Treasury Department soon joined the Fed in pumping money into AIG to keep it afloat. At one point, the government committed more than $182 billion to AIG in a complex, multistep bailout. The company, though, ended up using about $125 billion.
Taxpayers got a 92% ownership stake in AIG. And the unprecedented rescue became a focal point of anger about the crisis.
Lawmakers fumed about AIG’s decision to issue millions of dollars in bonuses to Financial Products employees and to fully pay counterparties, including Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc., billions of dollars for the insurance on risky subprime investments.
Since its bailout, AIG has been selling assets to stabilize its finances and repay the bailout money.
Late Sunday, AIG said it was selling an 80% stake in International Lease Finance Corp., its Century City aircraft leasing company. A group of Chinese investors agreed to pay about $4.2 billion, with an option to acquire an additional 9.9% stake.
The Treasury Department’s stock offering would generate about $7.8 billion in gains based on Monday’s $33.36 closing price of AIG shares.
Angelides, a former California state treasurer who co-chaired the Financial Crisis Inquiry Commission that looked into the causes of the disaster, said it was good that taxpayers would no longer own a piece of AIG, but the time it took to unwind the government’s stake showed how much of a mess the company had created.
“The fact that the United States government had to put forward $180 billion and had to remain a significant investor in a financial institution the size of AIG speaks to the depths and nature of the crisis we faced four years ago and its long aftershocks,” Angelides said.