Treasury Confirms That The Definitive Treasury-AIG-Fed Shell Game Will Proceed As Planned

Tyler Durden's picture

This one is sure to get Barofsky's blood boiling. Reuters has just confirmed what even a retarded, diapered, midget money will immediately grasp is nothing but a shell game of massive proportions. Basically the Treasury has announced it will proceed with a plan to give AIG the $22 billion released by various TARP repayments (presumably in the form of a loan), so that... drumroll, AIG can buy back the Fed's preferred stock interests in various layers of the AIG cap structure. In other words: Treasury gives taxpayer money to AIG -> AIG buys back rescue equity from Fed -> both Fed and Treasury trumpet massive success of AIG rescue operation, even as nothing has been changed, and more taxpayer funds are stuck, only this time higher in the cap structure, allowing existing equity interests of other investors to be pushed further in the money.

To be sure this is not news per se, as this was announced previously by AIG on September 30 when it announced the full details of the most recent ponzi-cum-shell game. What is hilarious is the ongoing lie from Tim Geithner: "Based on current market prices and the value of the assets supporting
the FRBNY's loans to and preferred interests in AIG and Maiden Lane II
and III, the USG expects to earn a profit on its loans to and
investments in AIG assuming the restructuring announced on September 30
is completed
." Of course it is the lie at the basis of this statement that forced Barofsky to recently call out Geithner as basically being an outright liar.

Full Treasury press release:

Treasury Update on AIG Investment Valuation

Following the completion of an initial public offering for AIA Group
Limited (AIA) and the sale of American Life Insurance Company (ALICO) to
MetLife, Inc., the U.S. Department of the Treasury is today providing
an update on the previously announced restructuring of the United States
Government's (USG) loans to and investments in American International
Group, Inc. (AIG).

 

The AIA IPO raised $20.5 billion of cash proceeds. The ALICO sale
raised approximately $16.2 billion of total proceeds, approximately
$7.2 billion of which is cash. This approximately $36.7 billion in
aggregate proceeds will be used to fully repay the loan extended to AIG
by the Federal Reserve Bank of New York (FRBNY) and a substantial amount
of the FRBNY's preferred interests in certain AIG subsidiaries.

As part of the restructuring, AIG will draw up to $22 billion in
remaining Troubled Asset Relief Program (TARP) funds from Treasury to
purchase the FRBNY's preferred interests in the special purpose vehicles
holding AIA and ALICO, and Treasury will receive those interests.  The
assets held by these special purpose vehicles, which include, among
others, AIG's remaining shares in AIA and the non-cash proceeds received
from MetLife for ALICO, significantly exceed the amount of the
preferred interests and, as such, no losses are expected on those
preferred interests.

After the restructuring, Treasury will own 92.1 percent of AIG, which
equates to approximately 1.66 billion shares of common stock in the
company. Based on the market closing price of AIG on October 29, 2010,
these shares are worth approximately $69.5 billion.  This amount
significantly exceeds Treasury's current $47.5 billion cash investment
in AIG.   (This is in addition to the Treasury investment in the
preferred interests described above.)  AIG has announced that it expects
to complete the restructuring by the end of the first quarter of 2011.

Based on current market prices and the value of the assets supporting
the FRBNY's loans to and preferred interests in AIG and Maiden Lane II
and III, the USG expects to earn a profit on its loans to and
investments in AIG assuming the restructuring announced on September 30
is completed.  Please see the chart below for further details.

The completion of the restructuring is subject to a number of
conditions. Nevertheless, the AIA IPO and sale of ALICO reflect the
substantial progress that AIG and the USG have made to date in
restructuring the company.


 

Investment

Current Outstanding Investment ($B)

Repayment/Comments

FRBNY Credit Facility

19.2

Will be retired from cash proceeds of AIA IPO and ALICO sale.
Note: Amount does not include all accrued interest and fees payable to
FRBNY (which, when combined with the remaining $19.2 billion Credit
Facility, totals approximately $20 billion). All accrued interest and
fees will also be repaid with the cash proceeds of the AIA IPO and the
ALICO sale.

FRBNY Special Purpose Vehicles
(AIA Aurora LLC and ALICO Holdings LLC)

26.1

As part of the restructuring, AIG will draw up to $22 billion
in remaining TARP funds from Treasury to purchase preferred interests in
the special purpose vehicles holding AIA and ALICO and Treasury will
receive those interests. Including the designated assets detailed in the
Agreement in Principle announced by AIG on September 30, the aggregate
value of the assets supporting the preferred interests in the special
purpose vehicles significantly exceeds the amount of the preferred
interests.  These assets include the remaining shares of AIA, MetLife
equity securities received as part of the ALICO sale, equity interests
in Nan Shan, Star Life Insurance, Edison Life Insurance, and ILFC, and
the Company's equity interests in the Maiden Lane II and Maiden Lane
III.  It is expected that proceeds from the monetization of these assets
will be used to repay the SPV preferred interests in full.

FRBNY Maiden Lane II LLC
(Outstanding Principal on FRBNY Loan)

13.5

The fair value of the assets supporting Maiden Lane II is $16.5
billion.  It is expected that the FRBNY loan to this vehicle will be
repaid in full.

FRBNY Maiden Lane III LLC
(Outstanding Principal on FRBNY Loan)

14.3

The fair value of the assets supporting Maiden Lane III is
$23.5 billion.  It is expected that the FRBNY loan to this vehicle will
be repaid in full.

Treasury Investment to Date

47.5

After the completion of the restructuring of AIG, Treasury will
hold 1.655 billion shares of AIG common stock. Based on the market
closing price of AIG on October 29, 2010, that common stock has a value
of $69.5 billion, which exceeds Treasury's current cash investment of
$47.5 billion.

Total Remaining Investment in AIG
(FRBNY and Treasury)

120.6