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Geithner: Bailout Will Cost Less than $25B, Government to Expect Profit from AIG

Source: Washington Post

Posted on 17 Dec 2010

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Treasury Secretary Timothy Geithner said on Thursday that the cost to taxpayers for the government's $700 billion financial bailout will be less than the $25 billion that the Congressional Budget Office's (CBO) recently estimated.

"Those estimates are now around $25 billion," Geithner said. "They are too high, in my judgment. Ultimately, they'll be lower."

Geithner, however, didn't say how much he thought the final cost would be.

Measured by its final cost, he said, the bailout "will rank as one of the most effective crisis-reponse programs ever implemented."

Most important, he said, is that the government's combined investments in banks, financial institutions, automakers and credit markets "will show a positive return. The losses will be limited to the amount we spend on our housing programs."

Among the factors underlying Treasury's expectation that the bailout will cost less than $25 billion:

-Bailed-out insurance conglomerate American International Group Inc. has taken steps toward paying off its bailout that at one point was worth $182 billion, the largest of the crisis. That has moved the government closer to what officials expect will be a multibillion-dollar profit.

Treasury will convert its stake in AIG into about 1.66 billion shares, worth around $70 billion. When the shares are sold, the proceeds will pay off Treasury's current $47.5 billion investment in AIG. The company will also borrow $22 billion to settle its obligations to the New York Federal Reserve.

-Treasury has received $13.5 billion from the recent initial public offering of General Motors stock. It expects to earn another $2.1 billion from GM when the automaker repurchases preferred stock that was issued as part of the bailout aid.

-Treasury recently sold off the last of its stake in banking giant Citigroup Inc., ending up with revenue of $12 billion above its investment of $45 billion.

-Altogether, Treasury has brought in about $35 billion from stock sales over the past two years.

Geithner said the U.S. financial system today "is in a much stronger position than it was before the crisis."