Survivor's remorse

AIG's bailout helped, not harmed, shareholders

American International Group’s bailout helped — not harmed — shareholders. Yet Hank Greenberg, the insurer’s persistent former chief executive, wants the company to sign on to his lawsuit against the US government over the $182 billion rescue. AIG would be crazy to do so, but the financial case is weak anyway.

The company would have failed without the government’s intervention in September 2008, probably sending its share price from an adjusted level of roughly $63 the day before its rescue was announced to zero. Instead, the stock is worth $36 today, a mere 43 per cent decline. Even before the Federal Reserve and the Treasury mobilised, AIG’s shares had already plummeted — but for that, shareholders can only blame the company’s bosses and the crisis that exposed their failings.

Overall, by the time the Treasury sold its last shares in December, Uncle Sam had recovered $23 billion more than it put into AIG. Calculated very simply, that’s an annualised return of about three per cent on the full amount committed to rescue the company. Even considering just the $130 billion AIG actually used, the government’s return was still only around four per cent a year.

Moreover, the government’s profit was modest — and uncertain — compared with what private sector investors were able to command at the epicentre of the crisis in 2008. Warren Buffett loaned Goldman Sachs $5 billion at 10 per cent annual interest, plus upside in the form of warrants. He ended up booking an annual return of 14 per cent without exercising the warrants - far better than the government has managed from AIG on the same basis.

Not even Buffett could have provided a lifeline of the size AIG needed. Even if he could have, a facility that gigantic would have cost more. Not only did the bailout leave shareholders better off than they would have been in bankruptcy, it came on more favourable terms than they could have achieved from private investors, even in theory.

That might not satisfy Greenberg, who seems determined to blame everyone but himself for the disasters at the institution he shaped for decades and ran until 2005. But it probably means the company’s board will merely be humouring him when it considers the suit on Wednesday. Howls of outrage over the possibility that AIG might try to bite the hand that saved it have already begun. Greenberg’s lawyers may be silver-tongued, but the odds are stacked against them.