American International Group Inc.’s shares priced at $29 in a U.S. Treasury Department offering that will reduce the government’s stake in the bailed-out insurer to about 70 percent.
The price is 1.5 percent less than yesterday’s close of $29.45 in New York, and the stock fell 3.1 percent to $28.53 at 10:21 a.m. AIG purchased $3 billion of the $6 billion shares offered. Treasury said today in a statement that it agreed to sell 206.9 million shares.
The Treasury is winding down bailouts from 2008 and 2009 that were intended to prevent a collapse of the banking system and protect jobs. The sale of AIG stock is the second for the department since it converted a preferred stake into 92 percent of the New York-based company’s common shares in January 2011. The government cut that holding to 77 percent in a May offering.
“This is likely a projection of the path forward,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said before the price was announced. “As opposed to selling major chunks, $10 billion or $20 billion at a time, they’re going to sell much more manageable amounts.” He rates AIG “market perform.”
The government needs to average at least $28.72 on its share sales to recoup taxpayer funds. AIG closed above that level on Feb. 28 in New York for the first time since July, after reporting fourth-quarter profit of $19.8 billion tied to a tax benefit. The insurer raised about $6 billion from the sale of a stake in Hong Kong-based AIA Group Ltd. earlier this week.
AIG, once the world’s largest insurer, has sold non-U.S. providers of life coverage, a consumer lender and other businesses to help repay the taxpayer bailout that swelled to $182.3 billion. Chief Executive Officer Robert Benmosche, 67, has sought to convince investors of the potential of remaining units, including global property-casualty and domestic life insurance operations.
AIG trades at about half its book value, a measure of assets minus liabilities. That’s lower than the valuation of insurance rivals including Ace Ltd., which trades at about book, and Travelers Cos., which is valued at about 0.9 times book. The AIG offering at $29 a share is a reflection of the company’s capacity for profits, said Meyer Shields, an analyst with Stifel Nicolaus & Co.
“It kind of seems appropriate, given the fact that their earnings outlook is weak,” said Shields, who has a “hold” rating on AIG shares. “Over the next three or four years, assuming the execution of fundamentals goes well, you’ll probably see the stock goosed up.”
AIG was first rescued in September 2008 by the Fed 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 up to $52.5 billion to buy mortgage-linked assets owned or backed by AIG.
The insurer was deemed by the Treasury a “systemically significant failing institution” and was the only company to receive bailouts through a facility created for such firms. AIG reported the biggest quarterly loss in U.S. corporate history in 2008 and posted almost $100 billion in net losses that year, fueled by bets on subprime-mortgage securities.
“We’re continuing to move forward,” Tim Massad, Treasury’s assistant secretary for financial stability, said in the statement. Treasury will “exit our stakes in private companies as soon as practicable,” he said.
The government’s cost basis for its common shares was $47.5 billion, excluding unpaid dividends and fees of $1.6 billion.