Last year, walking around Old Town Alexandria in Virginia, not far from Fool Global Headquarters, I passed a sizable group of people, all of whom were wearing brightly colored T-shirts with the letters A-I-G emblazoned across the front. At first I thought it must be some kind of joke. Who in their right mind would proudly tout their affiliation with the company most associated with the excesses of the financial crisis: American International Group (AIG 0.05%)? Was there any company that was more of a poster child for everything that went wrong in global finance than AIG?
Who knows, maybe they were just extraordinarily prescient, and celebrating today's news way ahead of schedule: that the federal government has finally sold off its remaining shares in the financial behemoth, and at a profit, no less. I know I'm celebrating.
Pop goes the insurer
The federal government's remaining stake in AIG was 234.2 million shares, which represented 15.9% of the company's stock. They were sold at $32.50 apiece, which makes for $7.6 billion in earnings off of the sale. At one time, the government owned 92% of AIG's shares. Now, AIG is again a fully private enterprise. The last remaining connection between the government and AIG are options to buy 2.7 million shares.
The federal government, if you recall, rescued the giant insurer in the worst days of the financial crisis, when it looked like the entire U.S. banking system was on the verge of collapse. As the Federal Reserve and the Treasury Department were scrambling to find a solution for the banks, up popped AIG with a major issue. There was hole in its balance sheet of, at first glance, $85 billion dollars: this because the insurer had gotten too deep into the world of credit default swaps, a type of derivative, and couldn't cover its bets when the bearers of said CDSes began calling them in.
For my next trick...
In the end, the federal government spent $182 billion in what would be the largest corporate bailout ever. Amazingly, it looks like the American taxpayer actually profited from the unholy mess, to the tune of $22.7 billion dollars. Nicely done, Mr. Bernanke and Mr. Geithner. Talk about pulling a rabbit out of a hat.
The sale of the government's remaining stake in AIG closes one of the longest-running chapters of the financial crisis. Most of the big banks that received money from the Troubled Asset Relief Program, TARP, have already paid their balances off, including Bank of America (BAC -0.13%), Citigroup (C -0.32%), JPMorgan Chase (JPM 0.49%), and even the Great Vampire Squid itself, Goldman Sachs (GS -0.23%). In fact, again amazingly so, the American taxpayer is well into the black from the bank bailout: $20.6 billion net to date. Not bad considering, for a while there, the country was alternately staring into the economic abyss.
I never did find out what that strikingly odd contingent was up to that day, but today's news makes me want to wear one of those T-shirts, too. But scribbled beneath the A-I-G, I'd add the following: "Don't let the door hit you on the way out."
Thanks for reading and for thinking.
