AIG recently raised more than $6 billion to pay back the U.S. Treasury. Photo Credit: David Shankbone/Wikimedia Commons/CC-BY

AIG and General Motors have been making great progress in paying the United States Treasury back for the bailout loans both companies received. AIG and GM were both maligned for the huge amount of money the firms received from the government, but they are returning to solvency. AIG was the single largest bailout performed under the program.

MetLife stock sold to pay back loans from Treasury

Insurance giant AIG sold a portion of its shares in the MetLife insurance company and turned over the proceeds to the United States Treasury, according to USA Today. AIG gave up 146.8 million shares of MetLife stock, from which the company raised $6.3 billion to make payments to the United States Treasury. AIG is using the funds in the effort to repurchase the $18.2 billion the Treasury holds in preferred equity shares of AIG. The government also holds 92 percent of AIG’s common stock, which was a condition of the bailout package the insurance giant received from the Troubled Asset Relief Program, or TARP. AIG was the single largest bailout, receiving more than $182 billion in total. The bailout included the Treasury and the Federal Reserve purchasing toxic asset from the company and $68 billion in loans.

General Motors on the road to health

General Motors, another notorious bailout recipient, borrowed $49 billion from the government to stay afloat, and the company has been making huge strides toward paying it back. General Motors recently announced in an earnings report that the company had made a profit every quarter of 2010, according to Reuters. This marks the first time since 2004 that the automaker has been profitable for an entire year, and it made the largest profit since 1999. GM posted a profit of $4.7 billion for 2010, though the stock price for the company has barely moved since the initial public offering in November. The Treasury still holds 33 percent of GM stock, which is a significant reduction since November 2010, when the Treasury held 61 percent. It is projected that the GM share price will have to rise to $53 per share for the government to break even.

End result of TARP

David Miller, the chief investment officer for the Troubled Asset Relief Program, said that the cost of corporate bailouts is not likely to be more than the money allocated for the housing crisis, according to Reuters. Miller said the Congressional Budget Office estimates that TARP will cost a total of $25 billion, and the Obama administration estimates slightly more than $28 billion. Treasury Secretary Timothy Geithner has said the estimate of $25 billion may be high. Various companies still owe the government $135 billion for TARP loans.

Sources

USA Today

Reuters on General Motors

Reuters on TARP estimates

AIG is fund raising with more than just baked goods to pay taxpayers back. Image from Wikimedia Commons.

American International Group had to borrow money in the bailout, and a lot of it. The insurance giant took out more than $130 billion in installment loans from the taxpayers to keep from collapse, and controversy surrounded it. However, AIG is making significant progress. The company has already paid back several billion to the government, and recently had a meeting with the Treasury to figure out how to complete the debt settlement. The company is set to convert the 80 percent in preferred shares the government holds to common shares, which would be sold for fast cash.

AIG and Treasury discuss payment plan

There isn’t a company that got emergency loans from the government that doesn’t want those balances reduced to zero. AIG received about $132 billion in loans from the taxpayers, and for that generous offer of help, the government got an 80 percent stake in the preferred shares of the company. Since then, AIG has been selling sub-companies and creating capital to pay off the government. According to USA Today, AIG recently met with Treasury officials to discuss paying the loans off. The deal is reportedly for the company to be completely paid up in two years or less.

Stock sale

The bulk of the fund raising would be done via sale of stock. Currently, the government holds about 80 percent of preferred shares in AIG. Preferred shares are different from common shares, in that there are more in dividends, but are less of a security than bonds. The preferred shares the government holds would be converted to almost a 90 percent share of common stock, which would be offered by the government to investors. Should the stock price rise accordingly, the government will actually turn a profit.

Miles to go before AIG sleeps

Currently, AIG still owes the government more than $100 billion. That is a lot of money to raise in two years, for any corporation. The company has been doing well in settling accounts, as non-essential divisions have been sold off to other companies.

Sources

USA Today

AIG got billions in the bailout, and a lot of people weren't happy. The company just paid $4 billion back to the Fed. Image from Wikimedia Commons.

Insurance and finance giant American International Group has just paid back a portion of the emergency loans that it borrowed to stay afloat. The Federal Reserve received a payment recently of almost $4 billion. The company still has a long way to go until AIG has complete debt settlement with the American people. The company still owes about $97 billion and has an open credit line for the next three years. AIG recently sold a hefty portion of its finance wing. The group is battling to get itself out of debt and back into the black.

AIG makes big payment to the Fed

The Federal Reserve was recently wired a payment of nearly $4 billion by AIG, according to Forbes. AIG was lent almost $182 billion in emergency loans, when the company nearly sank in the midst of the financial crisis. Since then, the Federal Reserve has kept an open line of credit for the company, in case it needs some further loan cash. AIG has been paying on the debt, as the debt for the company is now less than $100 billion for the first time since 2008. There is an open line of credit for AIG, as the Federal Reserve has $30 billion open to AIG in case it should be needed.

Share sale makes the difference

AIG sold a large amount of shares in the finance wing of the company. The sale was for about $130 million for an 80 percent stake in American General Finance Inc., according to Bloomberg. The shares were bought by Fortress Investment Group, LLC. The sum Fortress paid makes hardly a dent in the debt, but at least it makes for a quick payday for AIG. Every little bit helps.

AIG turning things around

A new day may be dawning for AIG, or at least a healthier day. The company had to borrow money, and a lot of it, in order to stay afloat. The American people were not happy with it, especially with the news of bonuses paid after a near total failure of the company. That said, AIG did make a big payment, so perhaps AIG is on track to recovery.

Further Reading

Bloomberg

Forbes

Pay Czar Kenneth Feinberg will once more slash and burn the salaries of TARP CEOs. (Photo: Wikipedia)

Obama “Pay Czar” Kenneth Feinberg wields a mighty money ax, and that ax is coming down once more on executive salaries at bailed out companies, says Reuters. The five firms under consideration – AIG, General Motors, GMAC, Chrysler and Chrysler Financial – are still depending upon government assistance to remain afloat. Since the Obama administration has found that previous crackdowns haven’t sent talented workers “fleeing for the exits” as the companies feared, the Pay Czar has the power to make another cut. Overall for 2010, the Treasury cut cash pay 33 percent.

Pay Czar’s office says 84 percent still with firms, despite pay cuts

In fact, Feinberg told the media that “There is a striking number of holdovers.” So far, that’s all the evidence the Treasury needs to justify striking this delicate balance and enable more money to come back to American taxpayers. The firms must be able to function, but taxpayers’ overnight loans must also be repaid. If a firm received “exception assistance” from the $700 billion in TARP funds, that firm must make sacrifices to repay America’s taxpayer base.

People don’t like to hear about AIG execs receiving multi-million-dollar bonuses

Yet that’s what happened, even after taxpayers had given up TARP monies to keep them afloat. Now that Pay Czar Feinberg is making wider cuts, the hope is that more Wall Street firms will follow the example. It could be the only way to begin restoring public confidence in a financial sector that openly played unnecessarily risky games with other people’s money. Reuters reports that Bank of America and Citigroup have repaid all or some of the TARP money they took, but too many offenders are still on the hook.

No cash bonuses, no long-term restricted stock, no golden parachutes

Those have all been eliminated in those companies under Pay Czar Feinberg’s watch. That frees up $45 million for AIG to repay their obligation to the American people. Salaries will also remain frozen at AIG with only “one exception” until they meet their obligation, says Feinberg. GMAC’s CEO has no cash salary now, only long-term stock. Chrysler’s CEO has a similar deal. Salaries there and at General Motors have been tightly monitored and kept down.

Let us reflect back on your greed

Companies that repay their TARP obligation would technically slip out of Pay Czar Feinberg’s regulation. Perhaps this is why he is looking to expand his legal authority. Reuters says he has contacted 419 TARP firms – including those who are technically off the hook – and asked them to “look back” at their past salary history. If pay was “excessive” between October 2008 (when TARP funds were first distributed) and February 2009 (when legislation affected pay levels at TARP firms), Pay Czar Feinberg wants there to be renegotiation. Specifically, pay above $500,000 for 2008 that is “not in the public interest” will apparently be routed back to American taxpayers in a yet to be determined percentage. Companies can either cooperate voluntarily or be forced by the Pay Czar to comply and give up news of their transgression to the public.

That’s quite an aggressive retroactive plan, isn’t it?

It will be interesting to see how many TARP companies fall in line. It is difficult to imagine the American public having any sympathy for them at this point. The recession has run too long and struck too deep in the country’s consciousness for more excuses. Taxpayers are not a personal loan company for these wasteful behemoths. Pay Czar Kenneth Feinberg may be the czar America needs; he may be the czar that Glenn Beck will regret weeping over.

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