AIG Support Continues Winding Down
As the Treasury Department continues its winding down of TARP programs, it will sell off $6 billion of AIG shares, likely bringing its ownership stake in the company down seven percentage points to 70 percent.
So far, Treasury has received about $18 billion of proceeds as it has reduced its ownership of AIG common stock from 92 percent to 77 percent, not including the $6 billion that is coming. The most recent CBO report on TARP does not project that Treasury will be able to fully recover the cost of AIG support; in fact, it will be the most costly area of TARP, with a projected subsidy cost of $25 billion. Overall, Treasury has provided $68 billion in efforts to support AIG, leaving $50 billion outstanding prior to the sale.
It is unclear whether this upcoming sale will affect CBO's projection one way or another. Since CBO calculates the cost of TARP using fair-value accounting (see our blog on understanding fair-value accounting here), the sale would affect its projection only to the extent that shares were sold at an unexpectedly high or low level. AIG share prices have risen since the time of CBO's last report, so the subsidy cost may decline if CBO did not anticipate that happening.
The table below shows federal government support for AIG through TARP, as well as Federal Reserve support via their page on AIG.
|Federal Government Support of AIG (billions)|
|Max Amount Given||Amount Outstanding|
|Support Through TARP||$68||$50|
|Fed Revolving Credit Facility||$72||$0|
|Fed Securities Borrowing Facility||$20||$0|
|Maiden Lane II||$23||$7|
|Maiden Lane III||$30||$18|
In addition to the sale of stock, AIG will also be repaying a lending facility from the Federal Reserve Bank of New York (AIA ALICO). This facility is only one of many forms of support that the Federal Reserve System has extended to the company, some of which have not yet been repaid.
Continue to check out Stimulus.org for the latest on Treasury's winding down of TARP.