American International Group Inc. (AIG) looks to have received an added bonus from the federal government. Assets the government received from AIG when it paid $40 billion as part of the insurer’s $150 billion rescue plan were valued at only $14.8 billion, Trading Markets reports.
A report by the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), which was created by Congress to oversee the $700 billion TARP program, said the difference in value represented an additional $25.2 billion subsidy—63% of the total TARP amount used for AIG.
AIG's $150 billion federal rescue package included $40 billion from TARP's Systemically Significant Failing Institutions Program, which purchased perpetual preferred shares in the company and warrants equal to 2% of issued and outstanding shares, Trading Markets reports. Additionally, the Federal Reserve Bank of New York, which provided the remaining $110 billion loan and liquidity package, holds warrants for almost 80% of the company's equity.
In its report, the panel said “valuation of the transactions is critical because then-Treasury Secretary Henry Paulson assured the public that the investments of TARP money were sound, given in return for full value.”
Trading Markets goes on to say that although the advisory panel and its consultants “looked only at the discount-to-face-value that the Treasury took as a result of its TARP investment,” the report said that in the case of AIG “they recognize that investment was part of a broader strategy by the government to prop up the company.”
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