By Daniel Indiviglio
WASHINGTON, Jan 8 (Reuters Breakingviews) - American
International Group's bailout helped - not harmed -
shareholders. Yet Hank Greenberg, the insurer's persistent
former chief executive, wants the company to sign on to his
lawsuit against the U.S. government over the $182 billion
rescue. AIG would be crazy to do so, but the financial case is
weak anyway.
The company would have failed without the government's
intervention in September 2008, probably sending its share price
from an adjusted level of roughly $63 dollars the day before its
rescue was announced to zero. Instead, the stock is worth $36
today, a mere 43 percent decline. Even before the Federal
Reserve and the Treasury mobilized, AIG's shares had already
plummeted - but for that, shareholders can only blame the
company's bosses and the crisis that exposed their failings.
Overall, by the time the Treasury sold its last shares in
December, Uncle Sam had recovered $23 billion more than it put
into AIG. Calculated very simply, that's an annualized return of
about 3 percent on the full amount committed to rescue the
company. Even considering just the $130 billion AIG actually
used, the government's return was still only around 4 percent a
year.
Moreover, the government's profit was modest - and uncertain
- compared with what private sector investors were able to
command at the epicenter of the crisis in 2008. Warren Buffett
loaned Goldman Sachs $5 billion at 10 percent annual
interest, plus upside in the form of warrants. He ended up
booking an annual return of 14 percent without exercising the
warrants - far better than the government has managed from AIG
on the same basis.
Not even Buffett could have provided a lifeline of the size
AIG needed. Even if he could have, a facility that gigantic
would have cost more. Not only did the bailout leave
shareholders better off than they would have been in bankruptcy,
it came on more favorable terms than they could have achieved
from private investors, even in theory.
That might not satisfy Greenberg, who seems determined to
blame everyone but himself for the disasters at the institution
he shaped for decades and ran until 2005. But it probably means
the company's board will merely be humoring him when it
considers the suit on Wednesday. Howls of outrage over the
possibility that AIG might try to bite the hand that saved it
have already begun. Greenberg's lawyers may be silver-tongued,
but the odds are stacked against them.
CONTEXT NEWS
- Directors at American International Group (AIG) will hear
arguments on Jan. 9 for and against joining a $25 billion
lawsuit against the government for its 2008 bailout. The suit
was brought by Maurice "Hank" Greenberg, the U.S. insurer's
former chief executive. He argues the government took too great
an ownership stake - 92 percent - and its terms were too harsh.
If so, then the bailout could have violated the U.S.
Constitution's Fifth Amendment by taking private property for
public use without just compensation.
- On Sept. 15, 2008, rating agency downgrades triggered
credit-default swap collateral calls that AIG could not meet.
Facing the likelihood of a bankruptcy, the government stepped in
the following evening to initiate a rescue, as it feared that
the company's failure would mean catastrophe for financial
markets. Through a number of measures undertaken by the U.S.
Treasury and the Federal Reserve, the firm obtained commitments
of $182 billion. It ultimately drew approximately $130 billion
of that total.
- On Dec. 14, 2012, the Treasury completed its sixth and
final sale of remaining AIG common stock, ending the
government's financial support of the company. The total profit
on the bailout made by the Treasury and the Fed totaled nearly
$23 billion.
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
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