What Does the S&P Mean for GM and AIG?
After being booted off the S&P 500 index and taking billions of dollars from the federal government, General Motors (NYSE:GM) and American International Group (NYSE:AIG) will rejoin their former posts on the index, providing a positive boost in shares to both companies.
GM took $50 billion dollars in bailout money from the government in 2008-2009 recession as the company was near bankruptcy; AIG was forced to take $182 off Uncle Sam. The government still owns shares in General Motors, and has promised to sell them by early 2014. However, the government is likely to lose money of its stake in the company, with GM shares largely hovering near their IPO price for the last two years.
GM is also eager for the U.S. treasury department to sell its stake, complaining that it gives off a negative perception to would-be customers as well as investors. The nickname “Government Motors” has plagued the company since the bailouts, and executives are ready to shed the demeaning name and return to autonomy. However, public perception has rebounded since 2009, when 70 percent of the American public held a negative perception of GM; as of 2011 over 70 percent had reversed their opinion, viewing the company favorably. Still, though, with 30 percent of the public not in their corner, GM has thought for some time that consumers hold the bailout against them, and are looking at every variable that could boost sales.
In the case of AIG, the government sold its last stake for $7.6 billion last year, claiming that taxpayers made over $20 billion in the process. The government’s claim to profit on AIG has been called misleading, though, as there were tremendous costs involved. According people involved in the Troubled Asset Relief Program (TARP) these costs include the precedent of a future bailout and unsolved regulatory mysteries long after the financial crash.
Hienz will become a privately held company after its departure from the S&P, with Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A) and partner investor 3G Capital acquiring the famed ketchup producer.
All of the companies are trading flat this morning, with the exception of GM, whose shares have gone up 1.6 percent on the news.
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