The Trouble Asset Relief Program (TARP) may be one of the most effective, yet simultaneously hated programs ever adopted by the public. The general public saw this program as a massive bailout by the taxpayers to the large, greedy banks. In retrospect though, it seems to be a very profitable investment, which has yielded strong returns for the government, while mitigating the unemployment that would have arisen had it not been enacted.
Yesterday, we learned the Treasury Department is liquidating a Preferred Share position in Citigroup (NYSE: C), and today, AIG (NYSE: AIG) announced a plan to accelerate the payback of taxpayer money. This plan, which comes nearly two years after AIG was rescued from the brink of collapses, will see the Federal Reserve Bank of New York paid back in full, and terminate it’s involvement with AIG. Along the same lines, the Treasury will convert some AIG securities it holds into common shares, which will actually increase it’s ownership stake in the firm from 80 percent to over 92 percent. That stake will be sold off over time, dependent on market conditions.
The deal announced will close by the end of the first quarter of 2011, giving taxpayers an instant profit of more than $10 billion on paper. The insurer is clearly making progress in disentangling itself from the government and positions the company to tap the capital markets again. AIG has been the receiver of widespread public anger, and AIG Chief Executive Robert Benmosche commented in an interview the deal should help the company avoid another “firestorm of negative publicity.” He further added “Now the debate is how much the government will make on AIG. Is it a billion, is it $10 billion? They are not talking about a $30 billion loss anymore. That builds confidence for this organization.”
Speaking from his Manhattan office, Benmosche said the plan creates clarity for clients and employees and allows the company to move forward. There is a general sentiment that having the Fed out of AIG will also enable the firm to gain access to credit easier, as lenders will not have to wait in line behind the Fed as a counterparty.
AIG has embarked an aggressive sale of assets which will shrink, and shore up the firm. It has recently been announced that MetLife (NYSE: MET) will purchase AIG’s foreign life insurance business Alico by the end of the year, in a deal valued at over $15 billion. As the firm sheds assets, it will likely come out the other end of the tunnel much stronger than before.
