AIG shares fall after Treasury says it's selling

AIG in New York. Treasury says it will sell at least $18 billion of the shares it acquired in the AIG bailout.
AIG in New York. Treasury says it will sell at least $18 billion of the shares it acquired in the AIG bailout. (AP, file)
Posted: September 11, 2012

Shares of American International Group Inc., the insurer rescued by the U.S. after bets tied to housing soured in 2008, declined as the Treasury Department said it would sell at least $18 billion of shares acquired in the bailout.

AIG slid 69 cents or 2 percent, to $33.30. The shares have gained about 44 percent this year, after falling 98 percent in the five years through Dec. 31.

"This is a very large amount of shares to send to the public at once," said Paul Newsome, an analyst at Sandler O'Neill & Partners L.P. "Whenever you see a lot of shares come on the market, you typically expect shares to trade down."

About $13 billion of shares will be sold to private investors, an allocation larger than in any of the past four offerings. In the first offering, in May 2011, AIG and Treasury sold a combined $8.7 billion of shares at $29 apiece.

AIG will repurchase as much as $5 billion of shares in the current offering, which will cut the U.S. stake in the firm to below 50 percent for the first time since the bailout that swelled to as much as $182.3 billion. The U.S. would own about 23 percent of New York-based AIG if it had sold stock at the Sept. 7 closing price of $33.99, data compiled by Bloomberg show.

The Treasury Department cut its stake to 53 percent in the last four share sales and raised about $23.3 billion. The fourth offering, announced Aug. 3, came the same week that AIG reported a 27 percent increase in second-quarter net income to $2.33 billion, driven by improving results at its property-casualty operation.

After the U.S. stake falls below 50 percent, AIG will be regulated by the Federal Reserve as a savings and loan holding company because it owns a bank, the firm said in a preliminary prospectus supplement.

AIG may face capital requirements and limits on its ability to repurchase stock or pay a dividend, under Fed oversight, according to the prospectus. The insurer is considering whether to close its bank unit to prepare for more government regulation including the Volcker rule, which limits proprietary trading and investing in private equity or hedge funds, said its chief executive officer, Robert Benmosche, last month.

The U.S. needs to average about $28.73 per share on the sales to break even on the stake it acquired as part of the bailout, excluding unpaid dividends and fees, according to the Government Accountability Office. The first two offerings were priced at $29 a share, and the second two at $30.50 apiece.

The Treasury's shares are the final piece of AIG's bailout that began in 2008 and swelled to as much as $182.3 billion, including support from the Federal Reserve Bank of New York.

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