What's Important In The Financial World (5/7/2012) Gas Prices Fall, U.S. to Cut AIG Stake

France and Greece are not the only nations in which the forces of austerity suffered a setback. The party of Angela Merkel, the champion of government cost cuts across Europe, gave up ground in local elections. Merkel’s coalition appears to have lost its majority in the northern state of Schleswig-Holstein. National elections in Germany are a year away. Time is short for Merkel to calm the voters of her own country, many of whom are angry that their taxes have gone indirectly to bail out Greece. Merkel, who is unlikely to back down from her austerity stance against the new French government and forces in Greece, may be in trouble for her decisions to participate in bailouts at all.

Gasoline Prices Fall

The widely followed Lundberg Survey showed that gasoline prices fell 6.75 cents to $3.8452 a gallon for the average price of regular, based on national samples. The data for was the period that ended May 4. After a brief pause, the cost of gas has begun to move lower again. It likely will continue. WTI dropped briefly below $100 last year. Most economists think that the fight over austerity in Europe will go on for months, as many nations slip further into recession. And Greece could still leave the European Union, which would likely drive it into depression. The fall-off in gross domestic product among many European nations is expected to hurt China’s export machine, which is another huge consumer of crude.

U.S. to Cut Stake in AIG

The U.S. government will cut its stake in AIG (NYSE: AIG) again. It plans to reduce its total piece of the company to 63%. The cost of the bailout to taxpayers have been calculated to be as high as $180 billion. Many experts believe that amount will never be recouped. However, Tim Massad, the U.S. Treasury assistant secretary for financial stability, said “We remain hopeful that taxpayers will ultimately recover every single dollar invested in the company, which is something few would have expected during the depths of the financial crisis.” At this point, that seems unlikely, based on the price of AIG’s stock. The Federal Reserve and Treasury supported an AIG bailout in 2008 because its huge number of relationships with other financial firms would have caused catastrophic ripples through the credit system. The Treasury will sell the stock at $30.30, about 5% below where it has recently traded. AIG may buy back some of the shares on its own.

Barclays Online Bank

Barclays, the UK-based bank, has decided to move into the U.S. online bank business. The move is a mystery, given the competition from American banks, brokers and financial advisors. Barclays believes that being in the credit card industry gives it a platform to add customers. However, competitors Citgroup (NYSE: C), Wells Fargo (NYSE: WFC), JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) have many more card members. The “big four” American banks also have gathered deposits for years through their branch systems. They have successfully migrated many of those customers to Internet-based retail bank platforms. Barclays has little leverage to make this initiative successful.

Douglas A. McIntyre