Treasury makes small profit
By Clare Baldwin and Pedro da Costa |
May 26, 2011, Thursday
|
Print Edition
Print Edition
THE United States Treasury made a small profit when it sold a portion of its shares in American International Group Inc on Tuesday, but it was unclear how its investment in the beleaguered insurer will ultimately fare.
The shares were sold for US$29 apiece, just above the US$28.73 average price the Treasury will need to break even on its record bailout of AIG during the financial crisis.
But the sale price was at only a 1.6 percent discount to Tuesday's closing price, which could prove scant comfort to investors who have watched AIG shares plummet 40 percent since the beginning of the year.
Tuesday's US$8.7 billion stock offering, which included 200 million shares sold by the Treasury and 100 million sold by AIG itself, is far smaller than the US$10 billion to US$20 billion deal some banking sources had suggested earlier this year, hinting at a potential lack of investor interest.
To be sure, Treasury and AIG only agreed earlier this month on the size of the offer, and the US government did not make its investments in AIG with the intention of turning a profit. Rather, it acquired the stock under extreme duress, as the potential failure of the insurance giant threatened to exacerbate an already severe financial crisis in late 2008.
"We're hopeful that we can recover all the investment that we made," Tim Massad, the Treasury's acting secretary for financial stability said during a conference call with reporters on Tuesday.
The extent of the profits or losses will not be known until Treasury fully exits its investment, a landmark event for which there is no specific timetable, Massad said. Following an agreed "lock-up" period of 120 days, Treasury will continue to reduce its holdings "in an orderly fashion."
"We're going to sell in a way to maximize value to the taxpayer," Massad said.
So far, Treasury has raised US$5.8 billion of the US$47.5 billion it needs to break even on the equity portion of its investment. Treasury cut its stake in AIG from 92 percent, but, by far remains the majority shareholder, with 77 percent.
The shares were sold for US$29 apiece, just above the US$28.73 average price the Treasury will need to break even on its record bailout of AIG during the financial crisis.
But the sale price was at only a 1.6 percent discount to Tuesday's closing price, which could prove scant comfort to investors who have watched AIG shares plummet 40 percent since the beginning of the year.
Tuesday's US$8.7 billion stock offering, which included 200 million shares sold by the Treasury and 100 million sold by AIG itself, is far smaller than the US$10 billion to US$20 billion deal some banking sources had suggested earlier this year, hinting at a potential lack of investor interest.
To be sure, Treasury and AIG only agreed earlier this month on the size of the offer, and the US government did not make its investments in AIG with the intention of turning a profit. Rather, it acquired the stock under extreme duress, as the potential failure of the insurance giant threatened to exacerbate an already severe financial crisis in late 2008.
"We're hopeful that we can recover all the investment that we made," Tim Massad, the Treasury's acting secretary for financial stability said during a conference call with reporters on Tuesday.
The extent of the profits or losses will not be known until Treasury fully exits its investment, a landmark event for which there is no specific timetable, Massad said. Following an agreed "lock-up" period of 120 days, Treasury will continue to reduce its holdings "in an orderly fashion."
"We're going to sell in a way to maximize value to the taxpayer," Massad said.
So far, Treasury has raised US$5.8 billion of the US$47.5 billion it needs to break even on the equity portion of its investment. Treasury cut its stake in AIG from 92 percent, but, by far remains the majority shareholder, with 77 percent.
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