Shares of American International Group Inc., the insurer rescued by the U.S. after bets tied to housing soured in 2008, declined 2% Monday after the Treasury Department said it will sell at least $18 billion of shares acquired in the bailout.
In New York trading, AIG shares sank 69 cents to close at $33.30. The shares have gained about 44 percent this year, after falling 98 percent in the five years through Dec. 31. Monday’s decline is the largest in the 22-company Standard and Poor’s 500 Insurance Index.
“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 LP. “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 sells stock at the Sept. 7 closing price of $33.99, data compiled by Bloomberg show.
Treasury cut its stake to 53 percent in the past 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, Chief Executive Officer Robert Benmosche said last month.
The U.S. needs to average about $28.73 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.
Benmosche, 68, is buying back stock to help AIG regain independence and increase the value of remaining shares. He’s raised funds for repurchases by divesting assets including part of its stake in Hong Kong-based insurer AIA Group Ltd. AIG trades for about 56 percent of book value, a measure of assets minus liabilities.
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.
AIG is the last U.S. insurer that hasn’t yet ended its bailout. The government has already divested its holdings in most of the largest U.S. banks including Citigroup Inc. and Bank of America Corp. while retaining a majority stake in Ally Financial Inc.
“As we think about our primary goal, which is to make sure we pay back America for all the support they gave us, and with a profit, we can see that happening,” Benmosche said in an online video posted last month.
Citigroup, Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the sale, the Treasury said yesterday in a statement. Underwriters have a 30-day option to buy as much as $2.7 billion more in AIG stock from the Treasury, according to the statement.
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