The government and AIG have agreed to the first step in the government’s attempt to extricate itself from (one of) the biggest and most appalling bailout(s) of the financial crisis.The government will convert its $49 billion of preferred stock into common stock, leaving it with a 92% ownership in the company.
If the common stock can be sold above ~$30 a share, this move will leave the government with a “profit”. If the company gets into a financial pickle again (requiring more capital), or if the stock can’t be sold above ~$30, the government (or, rather, the taxpayer) will get hosed.
The government is hopeful it can sell off its stake in 18 months. Former AIG CEO Hank Greenberg says it will take a decade.
The preferred-to-common conversion, of course, is only the beginning. Next on the docket to be repaid is a $26 billion loan. AIG is trying to sell off Asian units that could begin to make a downpayment on that.
The full details of the first step will be announced today. The devil is usually in those details, so we’ll have a look and see whether the taxpayer is getting screwed.