US to Sell $6 Billion of AIG Stock to Reduce Bailout Stake

Wednesday, 07 Mar 2012 05:28 PM

 

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The U.S. Treasury Department is selling $6 billion in shares of American International Group Inc., the insurer that was rescued in 2008 after mortgage-related investments soured.

AIG plans to purchase as much as $3 billion of the shares, the Treasury said Wednesday in a statement. The insurer also agreed to repay $8.5 billion in obligations to the government tied to its bailout, according to the statement.

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 department sold 200 million shares of New York-based AIG at $29 apiece in May of 2011, cutting its stake to 77 percent.

The Treasury is “not in the business of owning companies,” Phillip Phan, a professor at the Johns Hopkins Carey Business School in Baltimore, said in a telephone interview. “Now that the stock price is healthier, I think they will slowly cash out.”

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 a 2008 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.

Shares Rising

AIG’s shares have surged 27 percent this year to $29.45 as of Wednesday’s close of trading in New York. It posted a $19.8 billion fourth-quarter profit tied to a tax benefit and raised $6 billion 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, declined to comment on the offering’s price.

Chartis Rebounding

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 lower future 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, according to research by 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.

‘Systemically Significant’

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.

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