AIG bailout success a two-sided coin

The Treasury Department estimated Monday that its pending sale of shares in global insurance giant American International Group would put taxpayers in the black, four years after the government rescued the company in one of the largest, most-despised bailouts of the financial crisis.

The Treasury said in a release that it will sell more than 550 million of its shares to AIG and its investors for $32.50 per share, a deal that should net about $18 billion. Officials estimated that after the sale, the Treasury and the Federal Reserve will have netted $194.7 billion from its AIG investment, about $12 billion more than the government committed in aid.

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The stock sale would leave Treasury with approximately 317 million shares in AIG — a 21.5 percent stake in the company, down from a high of 92 percent — and leave open the possibility for future additional profit as the government exits the company.

“Taking action to stabilize AIG during the financial crisis was something the government should never have had to do, but we had no better option at the time to protect the American economy from the damage that would have been caused by the company’s collapse,” Treasury Secretary Timothy F. Geithner said in a statement. “To stabilize and then restructure the company with a very substantial positive gain for the American taxpayer is a significant accomplishment, but we need to continue the critical task of implementing Wall Street reform so that the American economy is never put in this position again.”

In a separate statement, AIG chief executive Robert Benmosche said the pending sale marks a significant milestone.

“This offering, Treasury’s largest to date, makes America whole on its investments in AIG plus a profit,” Benmosche said. “We are close to achieving what most outside AIG thought unimaginable. The people of AIG never lost faith, kept working, and are grateful for being given the chance to make good on this goal.”

The government’s hasty, controversial bailout of AIG and its drawn-out, just-as-controversial exit from the company has resulted in an unlikely success story. Few people would have predicted during the depths of the financial crisis — or even during the national outrage that followed news of bonuses being awarded at AIG after the bailout — that taxpayers eventually would turn a profit on the rescue of a company whose risky derivatives trades nearly sank the global economy.

But that improbable outcome now seems probable. And an essentially nationalized company that seemed destined for failure is now a profitable, nearly-private enterprise once again, much smaller but with much less risk on its books.

“This is right on schedule,” said James Millstein, a former Treasury official who oversaw the AIG reorganization. “Pretty good, even for government work.”

AIG’s turnaround represents an accomplishment for the company and for the Obama administration and is a testament to how the nation’s financial markets have stabilized since the depths of the financial crisis in 2008.