D.E. Shaw Takes AIG Stake as Berkowitz Boosts Its Holding

D.E. Shaw & Co., the $21 billion hedge-fund firm founded by David Shaw, was among investors that bought American International Group Inc. (AIG) shares as the U.S. Treasury Department reduced its majority stake in the insurer.

D.E. Shaw had 4 million shares in New York-based AIG as of June 30, it said in a regulatory filing yesterday. That compares with 57,827 shares three months earlier. Wellington Management Co., which oversees more than $600 billion, said in a filing that it held 10.5 million shares at the end of the second quarter. Wellington didn’t disclose a holding as of March 31.

Asset managers are betting AIG will recover after selling some of its most profitable units to repay a government bailout that swelled to $182.3 billion. The stock traded yesterday at half of book value, a measure of assets minus liabilities, almost three months after the Treasury sold 200 million shares of the insurer in a public offering.

AIG is “one of the cheaper stocks there is out there” by book value, said Paul Newsome, an analyst at Sandler O’Neill & Partners LP. Investors are “betting on the solidness of the balance sheet.” He advises clients to buy the stock.

AIG slipped 1 cent to $24.51 at 4:15 p.m. in New York Stock Exchange composite trading, the second-best performance in the 22-company Standard & Poor’s 500 Insurance Index. The firm has declined 49 percent this year.

Bruce Berkowitz’s Fairholme Capital Management LLC, the largest non-government shareholder in AIG, boosted its stake to 103.2 million shares as of June 30 from 44.2 million three months earlier, according to regulatory filings. The holding would be valued at $2.53 billion based on yesterday’s closing price on the New York Stock Exchange.

‘We Swing Big’

“When a recovering icon trades at half of our understanding of intrinsic value for a reason that has nothing to do with its prospects, we swing big,” Berkowitz wrote in a letter to investors last month. AIG is undervalued “due mostly to market pressures caused by the U.S. Treasury’s desire to sell its 77 percent ownership.”

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 cut in the May share sale.

‘Crisis is Over’

“AIG’s crisis is over,” Chief Executive Officer Robert Benmosche, 67, told analysts on a conference call Aug. 5. “Whatever is owed to the government for what they gave us in the beginning is all covered by collateralized partnerships or the common shares.”

AIG was first rescued in September 2008 after losses on housing-market bets by the Financial Products unit. The bailout was revised at least four times as the U.S. extended more credit and lowered the interest charged.

Kari Elassal, a spokeswoman for D.E. Shaw, and Robert J. Toner, a vice president at Wellington listed on the filing, didn’t immediately respond to requests for comment.

Separately, AIG named Executive Vice President Brian Schreiber as treasurer, replacing Robert Gender, according to a statement yesterday.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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