AIG Share Rout May Prolong Treasury Ownership, Goldman Says
American International Group Inc. (AIG)’s share slide may prolong the U.S. Treasury Department’s ownership of the bailed-out insurer, limiting near-term gains for private investors, Goldman Sachs Group Inc. (GS) said.
Michael Nannizzi, a Goldman Sachs analyst, cut his one-year price target for New York-based AIG to $27 from $31 in a note to clients today. The insurer has plunged by more than half since Dec. 31 as it paid claims tied to natural disasters and said it would take charges to bolster reserves for policies sold in prior years. AIG advanced $1.02 to $23.16 at 4:02 p.m. in New York Stock Exchange composite trading.
Chief Executive Officer Robert Benmosche, 67, is seeking to attract private investors to replace the government’s 77 percent stake. The Treasury would need to sell shares at an average of $29.70 to recoup a capital injection of $47.5 billion and unpaid dividends and fees of $1.6 billion, the U.S. Government Accountability Office said in a report last month. Excluding the dividend and fees, the breakeven price is about $28.73.
“The current price either prolongs the Treasury exit if it waits to sell at or above its breakeven of $29, or makes it more likely sales could occur at a lower price -- neither of which are supportive of the stock price in the near term,” Nannizzi said in the report. He rates the shares “neutral.”
AIG repaid the remaining $21 billion it owed to the Federal Reserve Bank of New York, and the Treasury converted its preferred stake into 92 percent of AIG’s common stock in January. The holding was reduced in May when the Treasury and AIG sold 300 million shares at $29 apiece.
The Treasury Department is working to “balance two objectives,” Secretary Timothy F. Geithner said in remarks to the Detroit Economic Club in April.
“One is to get these companies back into private hands as quickly as we can,” Geithner said. “But we also want to recover as much of the taxpayers’ money as possible. That’s a balance that will be different over time across different types of companies.”
The Treasury still has stakes in Ally Financial Inc. and General Motors Co. Mark Paustenbach, a spokesman for the Treasury, declined to comment today, as did AIG’s Mark Herr.
AIG was rescued in 2008 after regulators determined that the company’s failure to meet its obligations could lead to the utter collapse of the economy, Geithner told Congress last year.
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