Everyone is making money off of the break-up and financing of AIG (AIG) except the insurance company itself and the taxpayers who put up $180 billion to save it.
One of the public’s largest objections to the bailout of the financial industry is that some of the companies being bailed out are doing unusually well in the process.
According to an analysis in The Wall Street Journal, financial and legal advisers to AIG (AIG) have made nearly $1 billion on fees as the huge firm goes though its long and agonizing restructuring. The paper reports that “among the biggest beneficiaries is Morgan Stanley, which has earned about $10 million assisting the Fed, but could collect as much as $250 million from various AIG-related deals.” Morgan Stanley received TARP funds which certainly helped the company through the roughest moments in the credit crisis. Goldman Sachs (GS) and JP Morgan (JPM) are also getting large fees for working with AIG.
The outrage over the fees among taxpayers, Congress, and the media will begin immediately. People will ask why the work for AIG was not done at a “discount” especially the work done by firms which received federal aid funds. It is a fair criticism and a predictable concern.
But, the excitement over the large fees may be unjustified. If the companies that got government aid are going to recover and get beyond the point where they need more federal support, they will need to be able to get on about their normal work, part of which is investment banking and M&A advisory activities. The government can take that work away from the banks or tell them they must do it for free as a way or giving taxpayers some recompense. The process does not work that way. The financial system cannot recovery unless it operates in a free market with as little encumbrance as possible.
AIG will continue to restructure, perhaps for years. Investment banks will make large fees from the process, and that is in the normal course and is the only way taxpayers will be partially protected from having to put up more money to salvage the credit markets.
Douglas A. McIntyre
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