The U.S. Treasury Department is selling $6 billion in shares of American International Group Inc., the insurer that was rescued in 2008 after it suffered losses tied to wrong-way bets on the mortgage market.
AIG plans to purchase as much as $3 billion of the sale, the Treasury said yesterday in a statement. Shares are being offered at $29 apiece and the books are still open, according to two people familiar with the matter who declined to be identified because the process is private. The department sold 200 million shares of New York-based AIG in May -- also at $29 each -- cutting its stake to 77 percent.
A rebounding economy and climbing stock markets are allowing Treasury to unwind bailouts from 2008 and 2009 that were designed to prevent a collapse of the banking system and protect jobs. The government still owns a majority stake in Ally Financial Inc., after divesting holdings in banks including Citigroup Inc. and lowering its investment in General Motors Co.
“The company is basically going to help the government put a floor under the stock and then they’re going to sell shares,” said Josh Stirling, an analyst at Sanford C. Bernstein & Co. who has a “market perform” rating on the company. “Maybe this is the way that they will address the remaining overhang?”
AIG, once the world’s largest insurer, has sold non-U.S. providers of life coverage, a consumer lender and other businesses to help repay the taxpayer bailout that swelled to $182.3 billion. Chief Executive Officer Robert Benmosche, 67, has sought to convince investors of the potential of remaining units, including global property-casualty and domestic life insurance operations.
AIG’s shares have surged 27 percent this year to $29.45 as of yesterday’s close of trading in New York. The shares slipped to $29.12 in German trading today. The company posted a $19.8 billion fourth-quarter profit tied to a tax benefit and raised $6 billion this week by selling shares of Hong Kong-based insurer AIA Group Ltd. The stock in Benmosche’s company closed above the government’s break-even price of $28.72 on Feb. 28 for the first time since July. The Standard & Poor’s 500 Index has advanced 7.6 percent this year.
The Treasury hired Citigroup, Credit Suisse Group AG and Morgan Stanley to manage the offering. Matthew Anderson, a spokesman for the department, AIG’s Mark Herr, Credit Suisse’s Jack Grone, Citigroup’s Mark Costiglio and Pen Pendleton of Morgan Stanley declined to comment
Underwriters have the option to purchase an additional $900 million of the Treasury’s common stock, AIG said in a separate statement yesterday. The sale may price before normal trading hours in New York, according to a sales document obtained by Bloomberg News.
Treasury’s Remaining Stake
AIG fell to $28.88 at 7:58 p.m. in extended New York trading. If the government sells its shares at $29 each and AIG buys half the offering, the Treasury’s stake will fall by about 206.9 million shares to 1.25 billion, or from 77 percent to about 70 percent.
AIG and the Treasury also announced a plan to repay $8.5 billion in obligations to the government. The insurer will use $5.6 billion in expected proceeds from the AIA share sale; $1.6 billion from the wind-down of a Federal Reserve-controlled vehicle; and $1.6 billion in escrowed cash proceeds from the sale of a unit to MetLife Inc. in 2010.
Treasury’s outstanding investment will be $41.8 billion after that transaction, according to the department’s statement. The total doesn’t take into account proceeds from the share offering announced yesterday.
“The people of AIG have achieved another significant milestone,” Benmosche said in the insurer’s statement. “We are very pleased with our progress to date.”
Results at the company’s largest business by revenue, property-casualty insurer Chartis, rebounded in the fourth quarter. The unit was forced to take a charge of more than $4 billion a year earlier after reserves proved insufficient. After-tax operating income at AIG was $1.56 billion in the three months ended Dec. 31, compared with a loss of $2.21 billion a year earlier, the company said in February.
Benmosche cited improvements at AIG’s units and confidence in future earnings as part of a determination to record a $17.7 billion tax benefit in the period. Losses in prior years helped the company accumulate assets that can be used to cut tax bills.
The Treasury recovered about three-quarters of the $413 billion disbursed under the Troubled Asset Relief Program, according to an October report. Aid to GM and Chrysler LLC helped avert the loss of more than 1 million jobs, said the Center for Automotive Research in Ann Arbor, Michigan. Treasury Secretary Timothy F. Geithner told Congress in 2010 that AIG had to be saved to avoid an “utter collapse” of the global financial system.
AIG was first rescued in September 2008 by the Fed after trading partners demanded payments on derivatives contracts. After three revisions, the firm’s lifeline included a $60 billion Fed credit facility, a Treasury investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by AIG.
The insurer was deemed by the Treasury a “systemically significant failing institution” and was the only company to receive bailouts through a facility created for such firms. AIG had reported the biggest quarterly loss in U.S. corporate history in 2008 and posted almost $100 billion in net losses that year, fueled by bets on subprime-mortgage securities.
The Treasury received 92 percent of AIG’s common stock, or 1.66 billion shares, in January 2011 in exchange for a preferred stake. The government’s cost basis for the shares was $47.5 billion, excluding unpaid dividends and fees of $1.6 billion.
© Copyright 2016 Bloomberg News. All rights reserved.