A new report by a federal watchdog agency questions whether the U.S. government will be able to recover over the short term—if ever—the investment it has made in American International Group after it got into financial trouble in 2008.
The report was also highly critical of AIG's compensation policies, and the agency suggested that even after AIG exits the government aid programs, that its regulators should keep a close eye on its compensation policies.
AIG officials in New York declined comment.
It also warned that the compensation policies could lead to future problems.
The report said that, "Because companies generally have shown little or no appetite for reforming executive compensation practices, the economy remains at risk that compensation could play a material role in the event of a future crisis."
The report said that, "Although Treasury's complete plans for exiting investments [like AIG, GM and Ally] remain unclear, if Treasury's plan is to sell this stock at or above the break-even price, it may take a significant amount of time for markets to rebound to that level."
The report adds that, "Market conditions have slowed Treasury's progress. Treasury did not sell any of its shares in GM in 2011, or any of its shares in AIG in the latter half of 2011."
The report also demands that Treasury develop an end game for investments in companies like AIG in the light of the fact that "market conditions" make it unlikely that the government can recover its investments in these firms shortly.
"In light of market conditions, Treasury should develop a concrete exit plan for each of these investments," the report said.
The report also acknowledges that the government may never fully recover its investment in AIG.
It noted that last month, the Congressional Budget Office increased its estimated cost of the Troubled Asset Relief Program by $15 billion to $34 billion, due to a reduction in the market value of the investments in AIG and GM.
"Even though Treasury and CBO estimate a loss on these investments, we may not know for some time how much of a loss taxpayers will ultimately take," the CBO report said
The report said the watchdog agency was told by Treasury Department officials that it will need to sell its 1.455 billion shares in AIG at a price of $28.73 a share for taxpayers to break even on the investment.
AIG stock has been volatile with a high in 2011 of $61.18 per share on January 7, 2011, and a low of $20.07 on November 25, 2011, the report said.
The report by the Special Inspector General for the Troubled Asset Relief Program also strongly criticizes the executive compensation policies of AIG.
The report also questions whether the czar appointed to monitor and control the executive compensation policies of the 25 largest recipients of government financial aid, including AIG, acted in the public interest in approving the large salaries provided the executives of these companies.
