Bloomberg News

U.S. Treasury Sells $5.8 Billion of AIG Stock

May 07, 2012

The U.S. rescued AIG in 2008 as the New York-based firm was overwhelmed by losses on bets tied to mortgages. Photographer: JB Reed/Bloomberg

The U.S. rescued AIG in 2008 as the New York-based firm was overwhelmed by losses on bets tied to mortgages. Photographer: JB Reed/Bloomberg

The U.S. Treasury Department agreed to sell (AIG:US) about $5.8 billion of shares in American International Group Inc. (AIG:US) in a stock offering, with the bailed-out insurer buying $2 billion of the total.

The Treasury is selling 188.5 million shares at $30.50 each, compared with the May 4 closing price of $32.83, the department said today in an e-mailed statement. The transaction, the government’s third offering (AIG:US) of AIG’s shares since last May, reduces the Treasury’s stake in the insurer to 61 percent (AIG:US) from 70 percent, according to the statement.

Chief Executive Officer Robert Benmosche, 67, has sold assets to help raise funds to buy back shares from the U.S. The company said in March that dividends from insurance subsidiaries along with proceeds from divesting a plane-leasing unit, a stake in Hong Kong-based AIA Group Ltd. and other holdings will allow it to generate as much as $30 billion that could be returned to shareholders by the end of 2015.

“The company has been able to monetize sales of non-core assets and we expect this to continue for the longer term,” JPMorgan Chase & Co. analysts led by Arun Kumar said in a note to clients May 4, before the sale was announced.

AIG dropped 99 cents, or 3 percent, to $31.84 at 4 p.m. in New York. The insurer has advanced 37 percent since Dec. 31.

Access to Capital

The Treasury raised $5.8 billion in the first offering in 2011. At the same time, New York-based AIG sold 100 million shares for $2.9 billion to demonstrate access to the capital markets and satisfy a condition of its bailout. The insurer bought half of the $6 billion in shares the department divested in March. The day before that offering was announced, AIG raised about $6 billion by selling part of its AIA holding.

Treasury divested its first two chunks of AIG stock at $29 a share. The government needs to average $28.72 to break even on its investment. The insurer is responsible for paying the Treasury’s underwriting fees to banks.

The U.S. rescued AIG in 2008 as the New York-based firm was overwhelmed by losses on bets tied to mortgages. Its bailout swelled to $182.3 billion as the government extended more credit and reduced the interest charged.

The insurer paid back the balance on a Federal Reserve credit line and the Treasury converted its preferred stake into 92 percent of the common stock in January 2011. The government’s remaining investments in AIG total $39 billion after the share offering announced yesterday, according to the Treasury.

Barclays, Citigroup

“We’re continuing to make significant progress exiting our investment in AIG,” Tim Massad, the assistant secretary for financial stability, said in the statement.

Bank of America Corp. (BAC:US), Barclays Plc (BARC), Citigroup Inc. (C:US), Credit Suisse Group AG, Deutsche Bank AG (DBK), Goldman Sachs Group Inc. (GS:US), JPMorgan Chase & Co., Macquarie Group Ltd. (MQG), Morgan Stanley (MS:US), UBS AG and Wells Fargo & Co. (WFC:US) were the government’s banks on the offering, according to the statement.

Underwriters exercised their option to purchase about 24.6 million shares of AIG common stock as part of the latest transaction, the Treasury said.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • AIG
    (American International Group Inc)
    • $56.28 USD
    • -0.16
    • -0.28%
  • BAC
    (Bank of America Corp)
    • $17.98 USD
    • 0.05
    • 0.28%
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