In just three months, five trillion dollars of Americans’ household wealth evaporated during the waning days of the failed Bush Administration. Economic activity and trade around the world ground toward a halt. We are still feeling the negative effects, but the Obama Administration bailout – started under the hapless Bush – worked. Now in hindsight the question is raised whether Treasury should have demanded even more shares in return for its bailouts?
The U.S. Department of the Treasury is selling 553,846,153 shares of its American International Group (AIG) common stock at $32.50 per in a public offering. The proceeds to Treasury from the sale are expected to be about $18.0 billion. This means that the transaction locks in at least a $12.4 billion positive return on the $182 billion from Treasury and Federal Reserve loans and commitments provided to AIG. The bailout loan will be fully paid off in what remains an unpopular – but extremely effective – example of government intervention in a failed marketplace. Ideologues still refuse to admit that the TARP and associated government actions saved the U.S. and perhaps the global economy from far worse consequences. The bailouts without question saved the U.S. auto industry, and this includes many companies that did not require loans but were dependent on the health of the industry.
As part of Treasury’s offering, AIG will purchase 153,846,153 shares at the public offering price of $32.50 per share – representing approximately $5.0 billion of Treasury’s expected proceeds from the sale. Treasury has also granted the underwriters a 30-day over-allotment option to purchase up to an additional 83,076,922 shares of AIG common stock. If exercised, taxpayers would earn more.
Through repayments of principal and reductions/cancellations in commitments ($176.1 billion), as well as additional income from interest, fees, and other gains ($18.6 billion), Treasury and the Federal Reserve have now recovered a combined total of $194.7 billion.
Treasury ultimately said after the original version of this story was published that it expects to receive an additional $2.7 billion from the sale AIG common stock. The underwriters have exercised their over-allotment option in full to purchase approximately 83.1 million additional shares of AIG common stock at the public offering price of $32.50 per share. This means taxpayers made more than $15 billion on the deal.
