On the front of The Wall Street Journal this morning is the news that the U.S. Federal Bailout will cost far less than originally expected, and that the U.S. Treasury Department is considering unwinding its stake in American International Group (AIG).
AIG stock this morning is up $1.28, or 3.4%, at $39.42.
Deborah Solomon reports that the cost of the Federal bailout of financial institutions is looking to have cost $89 billion, according to Treasury officials not named, down from the $250 billion projected a little over a year ago.
What’s more, “Treasury officials are optimistic that even AIG could be on its own within a year, with officials discussing ways to extricate the government from its 80% stake in the insurer,” Solomon writes, citing anonymous sources.
Solomon’s sources say Treasury is considering converting its $48 billion of preferred shares in AIG into common stock in a manner similar to what’s being done with Citigroup (C).
Those newly optimistic estimates, however, do not include the $370 billion the Congressional Budget Office projects Fannie Mae (FNM) and Freddie Mac (FRE) will cost the government over the next decade, Solomon notes.
Officials estimate an eventual $8 billion profit for taxpayers on the bailout initiatives, writes Solomon.
In related news, the Journal’sSerena Ngwrites that AIG has unwound most of a series of soured mortgage trades, called “Abacus,” with Goldman Sachs (GS), protecting AIG from further losses as those mortgage assets decline in value.
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