US Treasury to hold minority stake in AIG after $18 bn offering

Sep 10, 2012
<p>Government stake to fall from 53 percent to around 20 percent after biggest stock sale to date of bailed-out insurer</p>

The US Treasury Department has launched the sale of $18 bn worth of stock in AIG, the insurer bailed out at the height of the financial crisis, in a move that will take the government’s stake below 50 percent.

The government’s current holding of 53 percent will fall to around 20 percent after the offering, which can be increased by $2.7 bn if there is additional demand from investors.

The sale is a key moment for AIG as it moves away from state ownership: the company will now fall under the regulation of the Federal Reserve as it operates a small bank. AIG will also be able to dictate the terms of any future stock sales.

It has been a long journey back to independence for AIG after receiving a $182 bn lifeline from the US government in 2008 following the deterioration of bets on risky mortgages, leaving the state with 92 percent control.

Since then, the insurer has undertaken a string of divestments to repay its debts, including the $18 bn flotation of its Asian arm AIA in Hong Kong two years ago.

AIG sold a further $2 bn stake in AIA last week, placing the shares with institutional investors. It plans to use the proceeds to help buy back $5 bn of its own shares in the government sale.

IR at the insurer is run by Elizabeth Werner, a former director at Bank of America Merrill Lynch where she was a sector specialist focusing on insurance stocks and real estate investment trusts.

She joined AIG in early 2011 to work on strategy with management and reconnect the company with large institutional investors at a time when the Treasury was preparing to begin offloading its AIG holding.

The announced share sale will be the government’s fifth offering of AIG stock since May 2011, all of which have been profitable for the Treasury.

The timing of the latest sale – the biggest so far – has raised questions about whether the government is rushing to exit the stock before November’s presidential election in order to show progress on winding down the unpopular bailouts of the financial crisis.

The Treasury denies the sale is politically motivated, reports Reuters.

Robert Benmosche, the AIG CEO who has been credited with preventing a fire sale of assets and turning round the insurer, all while battling cancer, said earlier this year he thought the Treasury could be out of the company’s stock by 2013.

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