Followers of the markets over the past few years know the name American International Group Inc (NYSE:AIG) all too well. For its investors, AIG was a painful blow to their portfolios and for taxpayers it showed how the largest financial institutions can demand public funds with the threat of destroying the economy otherwise. Fortunately for every taxpayer, AIG has been able to repay its government loans and even give the Treasury a profit of over $20 billion. But across the pond there is another financial powerhouse that is in a similar position as American International Group Inc (NYSE:AIG) was a few years ago: Royal Bank of Scotland Group plc (ADR) (NYSE:RBS).
A vast majority
Under the initial bailout terms, the U.S. government took an equity stake in AIG of 79.9 percent. As American International Group Inc (NYSE:AIG) returned to profitability and raised funds by selling units, the insurance group was able to begin paying down its debt, eventually to the point that a new plan was issued whereby the government’s preferred stock stake would be converted to common shares giving the Treasury a 92 percent stake in AIG. To compensate private shareholders for the additional dilution, shareholders were given AIG Warrants that carried the attractive terms of a $45 strike price, dividend protection, and an expiration date ten years from their issuance (Jan. 19, 2021). Shares were also above $45 at the time of their issuance and have only recovered to that point more recently.
Shares of AIG were sold to the public in a series of offerings between early 2011 and early 2013 resulting in the government’s complete exit of AIG that exists today. Looking at the ownership stake owned by its government, one can see that RBS is in a similar position to American International Group Inc (NYSE:AIG) prior to the share sales. Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is 82 percent owned by the U.K. government following the company’s own financial irresponsibility. While there has been some talk of a nationalization of RBS, comments recently made by the company’s executives show Royal Bank of Scotland Group plc (ADR) (NYSE:RBS)’ interest in a reprivatization of the bank.
During the AIG share sale, the Treasury began selling its shares around a break even price. However, later offerings in the sale brought higher prices for the AIG shares allowing the government to make a meaningful profit on the American International Group Inc (NYSE:AIG) sale. Contrasting this with the position RBS is in, it is more difficult to find how the U.K. government could see a profit from beginning a sale of RBS over the next couple years. According to The Guardian, shares of Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) were acquired by the U.K. government at an average price of just less than 500p. But with shares closing the week at under 290p, Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) shares would need to see substantial gains before U.K. taxpayers can expect to be made whole.