AIG bail-out nets a £9bn profit for US taxpayer

By DOMINIC JEFF
Published on 13/09/2012 00:00

The US government has sold more shares in bailed-out insurer American International Group (AIG), putting it $15.1 billion (£9.4bn) into profit since it rescued the firm in 2008.

American taxpayers have seen a handsome return on their bank bail-outs, in stark contrast to the experience in the UK.

During the financial crisis, the US Treasury and its central bank, the Federal Reserve, jointly committed $417bn to the Troubled Asset Relief Program (Tarp) which rescued banks, insurers and car makers.

Tarp is now being wound down and by the end of August had already recovered more than 84 per cent of its money.

The US taxpayer has received nearly $266bn from Tarp’s bank programmes through repayments, dividends, interest and other income – compared to the $245bn initially invested.

The rescue fund ploughed $182.3bn into AIG alone, and lists it as a separate item in its accounts. Following its latest share sale, the government has made $197.4bn from the investment and still holds a 15.9 per cent stake in the insurance giant.

The US still expects to make a loss on its bail-out of the car industry and associated finance firms, but says that will be offset by the profits elsewhere.

The US Treasury said was moving quickly “to reduce the dependence of the financial system on emergency assistance and replace public support with private capital”.

It added: “By any objective standards, the Troubled Asset Relief Program has worked: it helped stop widespread financial panic, it helped prevent what could have been a devastating collapse of our financial system, and it did so at a cost far less than expected at the time the law was passed.”

British politicians will look on America’s success in selling banking and other shares with envy.

The body which deals with Britain’s emergency investments, UKFI, only started off-loading assets at the start of this year, with the sale of Northern Rock to Virgin Money for a total deal worth around £1bn, a loss on the £1.4bn in equity pumped into the lender by taxpayers.

It retains the “bad bank” part of Northern Rock, packaged together with the closed mortgage book of the Bradford & Bingley as UK Asset Resolution. That has already started re-paying the government, but at the start of the year it still owed £46.6bn, which it eventually expects to repay in full.

UKFI has yet to see any return on its stakes in Lloyds and Royal Bank of Scotland, although that could change if they are able to return to sustainable profit and start paying dividends. It has invested more than £62bn in the two listed banks, but its current shareholdings would be worth only a little over half that.