It would appear that the United States government, despite its laundry list of issues, is a skilled deep-value investor -- at least, when you look at the country's investment in the original "too big to fail," American International Group (AIG 0.41%). This week, the government sold the remainder of its holdings in the company, chalking up a total profit of nearly $23 billion in just a few years. It would appear that while we were all squabbling over government intervention in the private sector, Uncle Sam went and checked out a copy of Security Analysis. This concludes a dark and preventable chapter in the nation's history. It also marks the beginning of a new era for the world's largest insurer.
Five years later...
It seems only a blink of an eye ago that we were in the depths of the financial crisis. You couldn't turn on the television without seeing a shot of AIG's headquarters, or that of any major commercial or investment bank. After plummeting from more than $1,000 per share to just $7, the company has clawed its way back from edge of hell and into good standing.
There were very few people with the chutzpah to take a position in the priced-for-death version of AIG, and only two took substantial positions. One of them was Bruce Berkowitz, the billionaire investor and chief of Fairholme Capital (and now the largest shareholder of AIG stock). The other was the United States. It makes sense: In 2008, the company was in an awful situation with no bottom in sight, and it didn't look like a stock that even the riskiest investor would want to be a part of. Investors didnt even have the option of investing in the second-biggest bailout recipient, General Motors (GM 2.95%), until long after the financial crisis had ended (note: the government still maintains a fairly large position in the automaker).
AIG, without doubt, would have collapsed without the intervention of the U.S. government. At one point in time, the U.S. owned more than 90% of the insurer. Many bemoaned the bailout, asking what worse behavior a corporation could get into with the safety of the Treasury behind it. But the company promised not only to pay back all of the bailout, but to make the public a profit.
I probably won't be rushing to the mailbox every day to see if I got my piece of the $23 billion, but let's hope it shows up somewhere.
What lies ahead?
AIG's rebirth was a remarkable feat. To this day, it's incredible that the company was able to dig itself out a seemingly bottomless hole. But it happened -- so now what?
Management has set long-term goals for the company in order to give investors an idea of what to expect from the new and improved AIG. The company is dedicated to making improvements to both its global casualty insurance unit and its U.S. life insurance business. Overall, management is shooting for more than a 10% return on equity going forward while slashing costs, initiating stock buyback plans, keeping an eye out for acquisitions, and initiating a dividend payout plan.
Will it happen, and will this be a more mature, responsible company that will reward investors? Let's hope so. To the company's credit, it has already made substantial progress in improving its businesses. Looking forward, things should only improve, as the company is now out from under the thumb of the government, free to operate how it pleases. Up until now, the government had prevented AIG from doing things such as paying a dividend.
It looks to me as though this was a successful venture, and a necessary one, for all parties involved. The U.S. government averted the financial apocalypse that would have occurred if AIG melted down, and AIG avoided, well, melting down. The next time a public company that is vital to the economic health of the U.S. or the world needs a pick-me-up, maybe you, too, should look into buying some shares in the shadow of the biggest deep-value hunter of them all: the United States.
