Treasury Sells Remaining Shares in AIG

Dec 11, 2012

The Treasury Department reported today that it will sell its remaining shares in AIG, ending a more than four-year assistance program. The final sale, comprising about 16 percent of AIG's common stock, is expected to bring in around $7.6 billion in returns.

With federal government commitments to AIG wound down, Treasury says that both it and the Federal Reserve have made $205 billion back on the original investment of $182 billion -- a net gain of $23 billion. $5 billion of this comes from Treasury's share purchases in TARP, which have been winding down from an initial total of about 1.7 billion shares for nearly two years.

Commitments to and Reimbursements From AIG (billions)
 Maximum CommitmentsRepayments/Reduced CommitmentsNet Return
Federal Reserve$112.5$130.2$17.7
Loans to AIG$35$41.8$6.8
AIA/ALICO Vehicles$25$26.4$1.4
Maiden Lane II and III$52.5$62$9.5
    
Treasury$69.8$74.8$5
Common Stock$47.5$51.6$4.1
Preferred Stock$22.3$23.2$0.9
    
Total$182.3$205$22.7

Source: Treasury Department

Because of the method CBO is required to use to score TARP, it is unclear what effect this will have on its cost estimate. CBO's most recent estimate had AIG assistance costing $14 billion, but this does not mean their estimate is high by tens of billions. CBO is required to use fair-value accounting, which means they evaluate the cost of TARP based on a reasonable rate of return given the market risk (the normal method would only take into account the real return on Treasury bonds, taking risk out of the equation). Thus, the cost estimate would only change to the extent that the proceeds exceeded or fell short of expectations.

Today's announcement marks the end to one of the most visible parts of TARP.  With the exit from AIG, the major remaining repayment left in TARP is from GM: as of last Friday, there is still $41 billion left in the program. There is also a small community bank program which Treasury is still waiting for about $500 million to be repaid. Other ongoing measures include housing programs, which do not involve repayments.