AIG Takes Taxpayers to the Cleaners …. Twice!

by InvestorPlace Staff | February 28, 2012 9:53 am

Last week, American International Group (NYSE:AIG[1]) reported a whopping $19.8 billion profit for its fourth quarter. Not bad for a bailed out insurance company that is the poster child for the mortgage crisis.

But here’s the catch: If you dig into the numbers, roughly $17.7 billion of that profit is just a trick of the spreadsheet.  As Andrew Ross Sorkin writes[2], it was “a tax benefit, er, gift, from theUnited States government.” Furthermore, AIG won’t pay a penny in taxes in 2012 – and by some estimates, won’t owe the government a dime until after 2020.

The fact that the company made $1.6 billion during the quarter is laudable on some level. It proves that restructuring the insurance giant and divesting some assets to pay creditors has ultimately saved this company from the junk heap. But the fact that a company of this size won’t pay a nickel to the IRS – even after accepting the largess of Uncle Sam via the 2008 TARP bailout – is a bit galling to many Americans. AIG was one of the largest recipients of bailout funds, along with automakers General Motors (NYSE:GM[3]) and Chrysler and embattled financial stocks Bank of America (NYSE:BAC[4]) and Citigroup (NYSE:C[5]).

Most disturbing in all this is that the tax benefits could actually be twisted into bonuses for company leaders, according to Sorkin. “The tax dodge, and let’s be honest, that’s what it is, also will most likely help goose the bonuses of A.I.G.’s employees, some who helped create many of the problems that led to its role in the financial crisis.”

You can read a full analysis of the tax benefit via a great New York Times column by Sorkin here[6]. But don’t expect a justification for the antics. A Treasury spokeswoman declined to comment in the piece, as did a spokesman for A.I.G.

Source URL: https://investorplace.com/2012/02/aig-tax-break-taxes/

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