The Treasury Department announced on Sunday the biggest sale of its holdings in the American International Group yet, taking its stake below 50 percent for the first time since 2008.
It’s a big step in unwinding one of the most controversial bailouts of the financial crisis. But there are still plenty of other rescue programs to dismantle.
The Treasury Department is planning to sell about $18 billion worth of its shares, an amount that could grow to $20.7 billion if there’s strong enough demand. That means that the government’s stake would fall anywhere from 23 percent to 15 percent.
Of course, that’s dependent on the stock market holding up and investors becoming enthusiastic about buying up an enormous amount of stock, though A.I.G. itself is buying about $5 billion. Neither the Treasury Department nor the company gave a proposed price for the shares, though by the government’s own reckoning, they must be sold at above $28.73 to break even on the bailout.
Still, there’s plenty more of selling that the government must do apart from the A.I.G. stock. The federal government still owns about 32 percent of General Motors, down from an initial 60.8 percent. And thus far, the Treasury Department has recovered about 50 percent of its initial investment in the auto maker.
But it’s not clear whether that will go down in the short term, given G.M.’s tepid profit reports of late. People close to the car maker said this summer that they did not expect the administration to sell off significant portions of its holdings this year.
On the other hand, the government has divested its stake in Chrysler, leaving control of the smaller car manufacturer with Fiat of Italy.
And the Treasury Department still owns 74 percent of Ally Financial, the bank formerly known as GMAC, as well as $5.9 billion worth of mandatory convertible preferred stock. To date, the department has earned back about one-third of its initial $17 billion investment.
Again, however, it isn’t clear when the government will be able to sell its stake in the lender. Ally’s mortgage unit, Residential Capital, filed for bankruptcy in May, removing one of the biggest thorns in its parent’s side. The lender can now contemplate either going public or selling itself to private equity firms, but a timeline for such a move hasn’t been set.
The Treasury Department also owns stakes in many small banks as part of the Troubled Asset Relief Program, and specifically the Capital Purchase Program in which it essentially bought equity in many lenders. So far, the government has made a $19 billion return on its initial investments. But as of early May, about 343 institutions remained in the program, though many continue to repay their rescues.
And, lest we forget, the administration is still heavily involved in Fannie Mae and Freddie Mac, having put the mortgage giants into conservatorship four years ago. That rescue plan so far remains deeply in the red, though both institutions posted a profit in their most recent quarter.
Article source: http://dealbook.nytimes.com/2012/09/10/after-a-i-g-whats-left-for-the-government-to-sell/?partner=rss&emc=rss
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