The United States Treasury Departments transaction to sell more than $5 billion in shares of American International Group, Inc. (NYSE:AIG) moved faster, after the parties agreed to reduce the lock-up period to 30-days, from the previous offering in May that required a 90 day freeze, which expired this month.
Last Friday, the Treasury Department decided to sell the stock sooner, after American International Group, Inc. (NYSE:AIG) shares rose above $29, a break-even price. In addition, the Treasury said the transaction included an AIG buy back of stock worth $3 billion, and an option for underwriters to buy additional 24.million AIG stock shares at $30.50 per share.
Wall Street underwriters decided to exercise their option to buy the additional shares. The Treasury Department expects to recover an additional $750 million in taxpayer money from the transaction. Prior to the Friday stock sale agreement, the United States government owned 61 percent of AIG stock. Its current stake in the insurance company is 53 percent.
The Treasury already recovered $23.3 billion from its four sales of AIG stock, out of the $182 billion bailout money provided by the government to prevent the company from bankruptcy in 2008.
Analysts expect AIG to continue repurchasing its shares from the government. AIG’s goal is to reduce the government’s holdings in the company below 50 percent.
According to some analysts, if AIG would be able to raise as much as $10 to $15 billion in excess capital from selling assets, the government’s holdings will be lower than 30 percent before the November presidential elections. The Federal Reserve will serve as the main regulator of AIG once the government’s stake becomes lower than 50 percent.
American International Group, Inc. (NYSE:AIG) reported solid earnings during the second quarter of 2012. Its net profit increased from $1.84 billion or $1 per share during the same quarter last year, to $2.33 billion or $1.33 per share. The company also recorded $11.5 billion in parent company liquidity. As expected by analysts and investors, the insurance company used a large portion of its cash to repurchase its shares from the Treasury. AIG is the world’s largest insurance company.
Apart from AIG, big banks received bailout money from the United States government, including Morgan Stanley (NYSE:MS), $107 billion; Citigroup Inc. (NYSE:C), $99.5 billion; Bank of America Corp (NYSE:BAC), $91.4 billion; Goldman Sachs Group, Inc. (NYSE:GS), $69 billion; JPMorgan Chase & Co. (NYSE:JPM) , $66 billion; and Wells Fargo & Company (NYSE:WFC), $45 billion among others.
In March 8, 2012, the U.S. Government Accountability Office (GAO) reported that banks repaid $211.5 billion in bailout money released under the Capital Purchase Program (CPP). The federal government made profits for rescuing the banks from bankruptcy. The government disbursed $204.9 billion to the banks and $16.7 billion remains outstanding.
According to a previous report from the New York Times, eight of the biggest banks fully paid their debts and the government generated $4 billion profits. Profits generated from the bailout money invested in Goldman Sachs was $1.4 billion; Morgan Stanley, $1.3 billion, American Express Company (NYSE:AXP), $414 million. The government also generated more than $100 million each, up to $334 million from Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp (NYSE:USB), and BB&T.
The Obama Administration was highly criticized in bailing out the big banks during the 2008-2009 financial meltdown because of fears that it might not be able to recoup the taxpayers money. The government proved that it made the right decision in rescuing the financial sector as it is receiving profits from its bailout investments.