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US earns US$15bln on the AIG bailout, says Treasury

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The US government has raked in $US15.1 billion ($A14.67 billion) in profits on its massive rescue of insurer AIG, the Treasury says in a rebuff to critics of the 2008-2009 bailout of the finance industry.

The massive AIG rescue deal, using $US182 billion ($A176.79 billion) of taxpayer funds to save the foundering insurer, finally turned a profit after the Treasury sold off 636.9 million shares on Monday to private investors and the company itself, raising $US20.7 billion ($A20.11 billion).

The share sale cut the Treasury’s majority shareholding in the company to 15.9 per cent.

“Future sales of Treasury’s remaining AIG common stock holdings will provide an additional return to taxpayers,” the department said on Tuesday.

AIG, once the world’s largest insurer, received the largest chunk of bailout money from the government’s Troubled Asset Relief Program (TARP) deployed to stop a meltdown in the financial system.

The bailout included both equity and loans from the Treasury and Federal Reserve aimed at shoring up AIG, which nearly collapsed after selling hundreds of billions of dollars in under-collateralised credit default swaps to banks and investment companies.

At the time, it was feared that AIG’s collapse would bring down buyers of the swaps as well, sparking a chain reaction throughout the global financial system.

But the rescue was deeply controversial, with critics saying the money put into AIG simply went toward paying off AIG’s counterparties, rather than having them take losses on their AIG-related investments.

Critics said putting the company into bankruptcy would have been better for the economy and fairer for taxpayers.

The Treasury Department said that $US353 billion ($A342.90 billion) of the $US417 billion ($A405.07 billion) funds disbursed via TARP had been recovered before the newest AIG share sale.

Mot of that has been from banks supported by the program.

The government still faces substantial losses on TARP support of vehicle manufacturers Chrysler and General Motors, mainly from taking over GM’s finance arm, now known as Ally Financial.

As of September 4, the government had only recovered about half of the $US80 billion ($A77.71 billion) extended to the car makers.