The Treasury Department is offering to sell $18 billion of American International Group Inc. shares in a transaction that will cut the U.S. stake in the firm to below 50% for the first time since its 2008 bailout.
The insurer plans to buy back as much as $5 billion of the shares and Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the sale, the Treasury said yesterday in a statement.
The U.S. would own about 23% of AIG if it sells the shares at the Sept. 7 closing price of $33.99 each, data compiled by Bloomberg show. Treasury had cut its stake in the New York-based firm to 53% in four earlier share sales, which raised about $23.3 billion. The last offering, announced Aug. 3, came the same week that AIG reported a 27% increase in second-quarter net income to $2.33 billion, driven by improving results at its property-casualty operation.
"AIG is still a work in progress and has some work to do on its underlying fundamentals, but they've come a long way," Cathy Seifert, an equity analyst at Standard & Poor's Capital IQ, said in an interview before yesterday's announcement. "We think it's undervalued relative to its peer group and relative to the progress they've made at turning themselves around."
After this sale, 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.
AIG slid 49 cents, or 1.4 percent, to $33.50 at 8:03 a.m. in early trading in New York.
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% 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.
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.
