The expensive (£1.2 trillion at one point) and currently loss making bail out’s of British financial institutions by the U.K. government including RBS, Lloyds and Northern Rock following the financial melt down of 2007-2008 has had a significant and continued negative impact on the public finances.
In contrast, U.S. taxpayers have fared much better from the $800 billion TARP (Troubled Asset Relief Programme) instituted in October 2008 by the Federal Reserve and Treasury. TARP aimed to stabilise the U.S. financial system by direct investment in banks and other bodies after the collapse of Lehman Brothers, Bear Stearns and others led to a complete loss of liquidity and trust.
Today, the U.S. Treasury announced that it has agreed to sell all of its remaining shares in AIG, the international insurance business for a final $7.6 billion. AIG was notorious during the 2008 financial crisis for huge liabilities which were run up against sub-prime assets and their associated insurance policies.
Following a credit rating downgrade and liquidity crisis in September 2008, the Federal Reserve created an unprecedented $85 billion credit facility to enable the company to meet increased collateral obligations. Subsequently to the bail out the Fed owned 80% of the company. By the middle of 2009 the Fed and Treasury had provided an investment of around $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182.5 billion.
After today’s share sale, the overal profit on the Federal Reserve and Treasury’s combined $182 billion commitment to stabilize AIG during the financial crisis is now $22.7 billion. To date, the U.S. Treasury has realised a positive return of $5.0 billion and the Federal Reserve a cool $17.7 billion. Not bad for a four year investment!
With British Chancellor, George Osborne, only having the 4G mobile spectrum auction to help marginally soften the blow of the U.K.’s ever increasing debt burden and no sign at all of any significant banking asset sale he must be wondering why he has hasn’t got an AIG on his hands rather than the likes of RBS.
Contrarian investor UK