Tim Geithner and Treasury use questionable methods when calculating AIG TARP losses

By Ian Katz and Hugh Son
Oct. 25 (Bloomberg)
The Treasury Department’s plan to recoup taxpayer funds from the bailout of American International Group Inc. uses questionable methods and may be too optimistic, the Troubled Asset Relief Program’s inspector general said.

Treasury’s estimate that it will lose $5 billion on its TARP investment in AIG “represents a dramatic shift from the $45 billion loss that Treasury had projected in its AIG investment just six months earlier,” Neil Barofsky, special inspector general for TARP, said in a report today. “While AIG’s fortune may have indeed improved during the course of those six months, there is a serious question over how much of this decrease comes from a change in Treasury’s methodology for calculating the loss as opposed to AIG’s improved prospects.”

AIG, once the world’s largest insurer, turned over a majority stake to the U.S. in 2008 as part of a rescue that grew to $182.3 billion. The exit plan converts the government’s preferred stock into 1.66 billion common shares for sale on the open market and taps a Treasury facility for as much as $22 billion to retire Federal Reserve bailout vehicles.

For Treasury to break even on its $49.1 billion investment in AIG stock, the shares must be sold for almost $30. The company traded below that level for more than two months this year, reaching a low of $22.15 on Feb. 8.

AIG slipped 13 cents to $41.43 at 2:16 p.m. in New York Stock Exchange composite trading today. The insurer has advanced about 38 percent this year.