No doubt about it, Treasury can’t get out of AIG fast enough.
AIG (AIG), Treasury and the Federal Reserve on Wednesday finalized the terms of the latest restructuring of the giant insurer’s bailout. Under the arrangement, the outlines of which were announced in September, AIG borrows money from Treasury to repay its remaining borrowings from the Fed, leaving Treasury with 92% of the company’s common stock. That deal is expected to close in March.
“Today’s announcement is a milestone in the government’s long-stated efforts to exit our investments in private companies as soon as practical while protecting taxpayers,” the government said. “When all is said and done, we believe taxpayers will recover every dollar invested in AIG and stand a good chance of making a profit.”
That’s a large chunk of stock, and the government – which is not exactly eager to be seen in the bailout business nowadays, what with all the associated bad press – would surely like to sell it sooner rather than later so it can advertise all the profits its so-called investments are making for taxpayers. This has worked wonders lately with two other bailed-out outfits, Citi (c) and GM (gm).
Thus, the Wall Street Journal reports the government wants to sell a quarter of its stake — $15 billion worth — in a series of deals that would ideally start early in 2011.
But the government doesn’t want its stock sales to compete with AIG’s own, which could drive down the price the government gets for its shares. The Journal says AIG would get to sell $2 billion or $3 billion worth in the offering that would slash the government’s stake so deeply.
However that math ends up working out, under Wednesday’s deal AIG will cede considerable control of its capital-raising ability till the feds have slashed their holdings by more than half.
That is to say, AIG can say it wants to sell stock to raise money, and Treasury if it wishes can say, That is a fine idea but the guys raising the money will be us.
This is not to say the restructuring is a bad deal for AIG. Among other things, it gets the right to sell as much as $7 billion in stock for itself between now and August, assuming Treasury gives it the go-ahead.
And why wouldn’t it? Treasury certainly wants the company to have enough money kicking around to prosper. This, after all, is why AIG never had to pay the billions of dollars in dividends the government was due on its preferred stock loans.
And plus, boo hoo, the company is going to need the money to deal with all the changover-related red tape.
Serves ’em right for getting bailed out, though.