Of all the government bailouts, AIG was the worse one. In the heyday of the housing bubble, AIG insured billions in shaky loans, loans that blew up when the housing bubble burst. As a consequence, the government has shifted $182.3 billion of taxpayer money into AIG to keep it afloat. Now, two years later, the government is looking for ways to get its money back.
One plan being discussed is for the U.S. Treasury to convert $49 billion of preferred shares it holds into common stock and then sell the shares to investors. This would increase government ownership to 90% from 79.8%. But it would give the government a way to unload the AIG stock and eventually reduce government ownership.
This process would take several years to complete. Meanwhile, the government wants to be certain that AIG has the ability to generate profits from its core businesses, which include global property and casualty insurance and a U.S. life insurance and retirement services business. AIG hopes to generate $6 to 8 billion annually from these operations.
In the event of a deal, would you buy the newly issued AIG stock?