The government’s plan to recoup more than $100 billion in taxpayer money it put at risk in the rescue of American International Group (NYSE:AIG), would allow Wall Street banks and lawyers to collect nearly $1 billion in fees from the Fed Bank of New York to help manage and dismantle the insurer, The WSJ said late Wednesday, citing its own analysis.
Among the biggest beneficiaries is Morgan Stanley (NYSE:MS), which has earned about $10 million assisting the Fed, but could rake in as much as a quarter of a billion dollars from various AIG-related deals, said the Journal, citing several banking experts and documents released by the New York Fed. Other ‘illustrious’ names of the American financial services industry that could get big paydays for helping break apart the insurer include Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), and JPMorgan Chase (NYSE:JPM).
To calculate the possible fee total, which could run higher or lower than $1 billion, the Journal said it tallied estimated dollar amounts for transactions already announced and those AIG is considering or may be forced to pursue in the future. The Journal also said it obtained assistance, in terms of fee arrangements for various types of deals under consideration, from Freeman & Co, Thomson Reuters (NYSE:TRI) and documents provided by the New York Fed.
I’d say it is no huge leap in logic to think that the situation creates potential conflicts of interest, as the government is in fact employing some of the same firms it regulates. A spokesman for the Treasury said “[he was] confident [the regulator] can separate the two.” While spinning is no-longer a novel concept, I have a hard time making sense of that statement. Obviously, there are sometimes progressively complex situation where judgments may differ as to whether there is or may be a conflict of interest. In this case however, I’d say that assessment is rather simple.
The government owns nearly 80% of AIG after exercising a series of bailouts in which it committed about $180 billion to the insurer’s rescue.
AIG shares closed up $8.48, or 62.70%, to $22, on the NYSE, ahead of the co.’s next quarterly earnings report on Friday.