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.
Government profits
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.
Still, some are speculating that ahead of 2015 elections, the current government may find it beneficial to begin selling RBS. The bailout of the banks in the U.K. is unpopular as it is in the U.S. While considering whether to sell RBS shares, other options are on the table to including a break-up of some of RBS’ operations and a plan to give shares away to U.K. citizens so they can benefit from an eventual recovery. At this point RBS’ future is as much political as it is financial and this represents an added risk to a position in RBS.
AIG bounced back. Will RBS follow?
Shares of American International Group Inc (NYSE:AIG) are much higher than they were at their lows. During the worst of the crisis they fell into the single digits (split adjusted) and have spent much of their time in the $20 and low $30 ranges. But shares have risen higher on positive news and closed out the week at $44.53 per share. RBS shares remain below the break-even point for the U.K. government and with disappointing results they are now under 300p. Depending on how well Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is able to restructure itself and how the broader economy improves will determine both the future value of shares, and whether the government will continue holding them.
The article From 80 Percent To Zero: Is RBS The Next AIG? originally appeared on Fool.com and is written by Alexander MacLennan.
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