Treasury to Cut A.I.G. Stake Below 50%
BY MICHAEL J. DE LA MERCED2012/09/09
The Treasury Department said on Sunday that it was planning its biggest sale of shares in the American International Group to date, making the federal government a minority shareholder in the bailed-out insurer for the first time since it took control of the company four years ago.With the sale of at least $18 billion worth of shares in A.I.G., a number that could grow to $20.7 billion if investors prove enthusiastic, the Treasury Department could reduce its holdings to as little as 15 percent from 53 percent.
Taking the government’s stake in A.I.G. below 50 percent is the realization of a long-held goal by both the Obama administration and the company, helping to cut ties to one of the most controversial bailouts of the 2008 financial crisis. The Treasury Department expects to earn a profit on its investment in A.I.G., though it is unclear how large.
“This was always meant as a temporary measure,” Henry T. C. Hu, a professor at the University of Texas School of Law at Austin, said. “The faster we can do this as a practical matter, the better for everyone involved.”
Professor Hu described the A.I.G. bailout as one of the government’s first major interventions in the economy and private enterprise, setting the stage for other major rescue operations.
The latest offering will take place during the heat of the electoral campaign, as the president seeks to defend the use of taxpayer money to save financial institutions like A.I.G.
Administration officials have long said that they would seek to sell off the holdings in private enterprises as quickly as possible, arguing that the government is not a natural long-term shareholder.
Regarded as one of the world’s most powerful insurers by the fall of 2008, A.I.G. nearly crumbled under the weight of risky bets on mortgages as the debt markets soured. The Bush administration intervened with an unusual $182 billion lifeline to help stabilize the global financial sector.
In the process, it gained a roughly 92 percent stake in the insurer.
But the rescue plan was initially denounced by some critics as likely to cost the government billions, while also leading to a breakup of the company.
Four years later, the company has turned around. It has reported several consecutive quarterly profits, while seeing its stock rise more than 10 percent since the government began selling its holdings in May of last year.
The company’s shares closed on Friday at $33.99, above the government’s break-even price of about $28.73.
The offering announced Sunday will be the fifth sale of A.I.G. shares by the Treasury Department and is the latest effort by the government to unwind the A.I.G. rescue this year. Last month, the Federal Reserve Bank of New York announced that it had sold the last of a collection of risky bonds acquired from the insurer as part of the bailout. All told, the sale of those securities reaped about $9.4 billion for taxpayers.
Yet the government remains entangled in a number of other corporate rescues, including those of General Motors and Ally Financial. The remaining bailouts are expected to be largely unprofitable, especially those for the fallen mortgage finance giants Fannie Mae and Freddie Mac.
A.I.G. was initially expected to fall into that camp, subject to a fire sale of assets that would lead to its quick wind-down. But under Robert H. Benmosche, the insurer has instead focused on rebuilding its operations, becoming smaller and more cautious about keeping away from the risky bets that nearly caused its demise.
Since its bailout, the company has sought a more orderly sale of assets aimed at maximizing the prices it can fetch. Those include the divestiture of stakes in major international insurance operations like the AIA Group and the American Life Insurance Company.
And A.I.G. is preparing to raise more capital by staging an initial public offering for its aircraft leasing business, the International Lease Finance Corporation.
As part of the stock sale announced on Sunday, A.I.G. plans to buy back about $5 billion of the shares that Treasury is selling. Some of the proceeds will come from the company’s sale last week of additional shares in AIA.The reduction of the Treasury’s stake below 50 percent is likely to bring about other changes for A.I.G. Its primary regulator will become the Federal Reserve, since the company owns a small banking unit. And it may become subject to potentially tougher rules governing its capital, affecting its ability to continue buying back stock.
The sale is being managed by Citigroup, Deutsche Bank, Goldman Sachs and JPMorgan Chase.
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