Uncle Sam is Dumping Stocks in Bailed Out Companies
The government has begun the long process of unloading its many acquisitions from its numerous bailouts by selling a portion of its shares in American International Group, better known as A.I.G. (NYSE:AIG). After the $8.7 billion offering of A.I.G. shares on Tuesday, the government maintains $1.4 billion worth of common shares in the company, $11.3 billion of preferred shares, and a 77% stake in the company.
All in all, the U.S. Treasury has $53 billion invested in A.I.G and the Federal Reserve Bank of New York has about $23.6 billion in two A.I.G.-related investment vehicles.
The Treasury still maintains stakes in other bailed out companies that it plans to unload in the next few years, including a 26% stake in GM (NYSE:GM), a 6.6% stake in Chrysler after they paid back $5.9 billion in loans on Tuesday, and a 74% stake in Ally Financial.
Shares in the two companies that the government has begun to unload, A.I.G. and GM, have both fallen. A.I.G. shares dropped 4% yesterday to $28.28, a low for the year, while GM shares have dropped 8.5% since their November IPO, closing Wednesday at $31.27.
Of the $700 billion in bailout money distributed through the Troubled Asset Relief Program (TARP), the government has recouped 73% through both repayments and interest and has the potential to make a profit when all is said and done. But the government has to be careful when unloading large quantities of stocks at one time, at the risk of driving down sale prices and incurring big losses.
Both the Treasury and bailed out companies alike want to reduce government ownership. The government wants to avoid acting as a hedge fund or private equity investor while the companies believe government ownership has been preventing private shareholders from investing. But now might not be the time for the government to sell large stakes in companies. While talks with GM last year resulted in the government increasing the number of shares they would sell and their price to great success, A.I.G. (NYSE:AIG) shares had already fallen 49% this year before the new IPO. And even with the comparative success of GM’s (NYSE:GM) $33 a share IPO in November, the government will have to get $53 a share on their remaining stocks just to break even.