Treasury Winds Down TARP Support of AIG

Sep 11, 2012

As the Troubled Assets Relief Program (TARP) continues to wind down, the biggest programs remaining are the support of GM and AIG. The latest estimate of TARP from CBO projected the two programs would cost $41 billion combined, larger than the $32 billion overall cost projection for TARP. That means the remaining elements of TARP have been a net gain for taxpayers. Thus, any movement on either of these two companies represents the biggest news remaining for TARP.

Today, the Treasury Department announced its largest sale of AIG stock so far. It will sell $18 billion worth of shares, lowering its stake from 53 percent to 20 percent. For context, Treasury's ownership stake had been 77 percent as recently as March of this year, and it was 93 percent through May of last year. The sale represents a continuing trend of winding down the AIG support from both the Federal Reserve through various purchases (see here, here, and here) and the Treasury Department through TARP.

TARP Cost Estimates (Billions)
TARP ProgramDecember 2011March 2012Maximum Amount Disbursed
Capital Purchase Program-17-17205
Citigroup and Bank of America-8-840
Community Development Capital Initiative001
Assistance to AIG252268
Subtotal, Financial Institutions1-3313
Auto Company Assistance201980
Investment Partnerships0018
Mortgage Programs13163

Source: CBO

It is unclear how this move might affect CBO's next cost estimate of TARP. Since AIG's share price is higher now than it was when CBO made their last estimate in March, this may mean good news could be contained in the next report. It may also be the case that CBO factored in larger increases in AIG's share prices than what's been seen in recent months.

Either way, the AIG selloff is part of a larger trend of TARP coming to a close. The Capital Purchase Program, the largest program in the bank portion of TARP, has only about $10 billion outstanding, mostly from smaller banks. The Public-Private Investment Program has seen its outstanding investments fall from about $21 billion to around $14 billion this year. The housing programs are one area where money continues to flow, but those programs are likely to spend much less than initially anticipated.

Ultimately, the next CBO report will show how much these AIG transactions affect the net cost of TARP.