Analysis: How AIG will - or won't - generate a bailout profit

Wed Mar 28, 2012 3:20am EDT
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By Ben Berkowitz

BOSTON (Reuters) - CEO Bob Benmosche says U.S. taxpayers will earn up to $10 billion on the $182 billion rescue of American International Group (AIG.N: Quote), the insurance company he runs. Of course, that depends on how one defines "profit."

How much AIG actually borrowed after it was saved from bankruptcy in late 2008, how much it still owes and questions about the point at which the U.S. Treasury breaks even on its shares all complicate any calculation about how much the government will make on the insurer's bailout.

It even is possible, under some (disputed) scenarios, that all of the profits go to the Federal Reserve and the losses go to the U.S. Treasury, netting a gain for the government as a whole.

Either way, though, even critics of the way the bailout has been handled concede something is better than nothing.

"Now is that a great return relative to other investments in the stock market? Not really," said Linus Wilson, an assistant professor of finance at the University of Louisiana-Lafayette, who has calculated the returns from the bailout. "We'll take breaking even after a huge holding period, rather than a huge loss."

Benmosche, in an interview with CNBC's Jim Cramer Monday night, was adamant AIG would repay its bailout in full and that between all the branches of government that participated, a profit of $5 billion to $10 billion would result.

That is a far cry from two years ago, when the Congressional Budget Office estimated the government would lose $36 billion on the rescue.

But where the government's cost ends and the taxpayers' profit begins is sort of an open question.   Continued...

The American International Group (AIG) building is seen in New York's financial district March 16, 2009. REUTERS/Brendan McDermid