A while back I built a spreadsheet to do math about AIG, and it took me a long time and led to basically one short post with what I still think was a rather lovely blobby picture, so I’m just going to shamelessly reuse that spreadsheet with slight updates and be all OOH LOOK AN IRR:
So yeah: as the AIG bailout saga comes to its sort-of conclusion, we can sort of conclude that the government made a 5.6% return on its money. Assumptions etc. in the original post; the accounting profit ties out reasonably well, if you squint, with the Treasury’s official math.
Herewith some random observations and questions on AIG:1Read more »
“Dear Colleagues,” Robert Benmosche wrote in a memo to AIG employees today. “We come together as a company to celebrate in good times and we draw together in times of shared crisis. Today warrants a celebration like no other in AIG’s history and places well in the past a crisis none of us will ever forget…Today the US Department of the Treasury has priced an offering of approximately 234.2 million shares of AIG common stock at a price to market of $32.50 per share. Upon the closing of this transaction, expected this Friday, Treasury will have sold the last of its remaining shares of AIG common stock, receiving proceeds of approximately $7.6 billion from the sale. The closing of this transaction will mark the full resolution of America’s financial support of AIG…It is one of the most extraordinary – and what many believed to be the most unlikely– turnarounds in American business history. And you did it…You did this. Every single man and woman at AIG did this remarkable thing. There is a saying in American life, there are no second acts. Well, take a bow, because today marks our second act.” [Dealbook]
AIG shareholder, ex-CEO, and general fanboy Hank Greenberg sued the government for destroying the valuable valuable value of his AIG stock, and
Duh he lost! It’s AIG, it’s become a byword for financial failure. “Don’t pull an AIG,” bankers say to each other, in my lazy imagination. You don’t need to be a lawyer to know that a lawsuit claiming that the government’s bailout stole massive value from AIG shareholders was not going to work. It didn’t! The end.
But there actually was all sorts of crazy nefarious stuff going on; your sympathies may vary but I was ever-so-slightly moved by two of Greenberg’s claims: Read more »
After the Great Auto CEO Debacle of 2008, the government had put its foot down on private-jet use by CEOs of TARP-supported companies, and when these onerous restrictions threatened to thwart his ability to make his granddaughter’s birthday party in Chicago, he exploded. “I said to Jim, ‘Here is the deal,’ ” he recalls. “ ‘I’m going to go and see my granddaughter, and I’m going to take that plane and shove it up your fucking ass. And everyone else’s ass. You are going to break my banana over this shit?’ ” [NYM]
AIG priced a giant stock offering last night at $32.50, making the government rich. A really really simple question you could ask about AIG is “how’s the government doing?” and I Googled around for the answer yesterday and got increasingly frustrated, then angry, then drunk. Why can’t someone tell me that? The answer has to do I think with competing interests and secrecy and embarrassment and innumeracy both real and tactical, and I could write a book about it but won’t.1 Instead, I will just tell you how the government is doing on AIG, and then you will know.2
The government has gotten back $12.3 $15 billion more than it put into AIG so far, plus it has about $10bn $8 billion worth of AIG shares left over. (This is what the government says too, to within rounding error.) [Update: revised for greenshoe exercise.]
Its IRR is 3.2% 3.9%, or 5.7% if you assume it sold the remaining AIG shares today (which: it didn’t).
If you assume the government’s cost of capital for the bailout was 3.04%, or roughly 5-year Treasury rates as of the time they signed on to this almost 5-year bailout, then the government’s made an economic profit (returns in excess of cost of capital) of $600 million $3 billion, or $9.9 billion including the remaining AIG shares.
If you assume the appropriate discount rate for the bailout was 12%, or roughly what AIG’s initial Fed credit facility paid, then the government has undercharged AIG by about $26.3 $24.6 billion, or $19.7 billion including the remaining shares.
“Many companies have transactions that go bad,” Greenberg said today on “In the Loop With Betty Liu” on Bloomberg Television. “Everybody’s not paraded down to Washington to testify.” “He handled it OK,” Greenberg said of Dimon, 56. “It was really outrageous to have the CEO come down and testify before Congress because of a transaction that didn’t work out well.” [Bloomberg, related]
The three directors who oversee risk at JPMorgan Chase include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots. What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years…The committee, which met seven times last year and hasn’t changed its composition since 2008, approves the bank’s risk- appetite policy and oversees the chief risk officer, according to the company’s April 4 proxy statement. [Bloomberg]