U.S. launches sale of some AIG stock
The Treasury Department is launching a sale of $6 billion worth of the $41.8 billion in common stock that it holds in insurance giant American International Group Inc., which received the biggest bailout of the financial crisis in 2008.
The department announced the sale Wednesday. It’s a step by the government, which still owns 77% of AIG’S common stock, toward disentangling itself from the New York company. The Treasury Department said AIG plans to buy as much as $3 billion of the stock being sold.
The department also announced an agreement with AIG for it to repay the government’s remaining $8.5 billion preferred-stock investment in the company.
A rebounding economy and climbing stock markets are enabling the Treasury Department 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 AIG at $29 apiece in May 2011, cutting its stake to 77%.
The Treasury Department is “not in the business of owning companies,” said Phillip Phan, a professor at the Johns Hopkins Carey Business School in Baltimore. “Now that the stock price is healthier, I think they will slowly cash out.”
AIG, once the world’s largest insurer, has sold nonU.S. providers of life coverage, a consumer lender and other businesses to help repay a 2008 taxpayer-funded bailout that swelled to $182.3 billion. Chief Executive Robert Benmosche, 67, has sought to convince investors of the potential of remaining units, including global property-casualty and domestic life insurance operations.
AIG’S shares have surged 27% this year to $29.45 at the close of trading Wednesday. The firm posted a $19.8-billion fourth-quarter profit tied to a tax benefit and raised $6 billion by selling shares of Hong Kong insurer AIA Group. AIG shares closed above the government’s break-even price of $28.72 on Feb. 28 for the first time since July.
The Treasury Department recovered about threequarters of the $413 billion disbursed under the Troubled Asset Relief program, according to an October report. Aid to GM and Chrysler helped avert the loss of more than 1million jobs, according to research by the Center for Automotive Research in Ann Arbor, Mich. 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.
AIG was first rescued in September 2008 by the Federal Reserve 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 as much as $52.5 billion to buy mortgage-linked assets owned or backed by AIG.