American International Group agreed to wind down its $182.3 billion bailout by converting the Treasury Department stake into common shares for sale, a step toward independence for the insurer whose near collapse two years ago threatened the global economy. The company gained 3.4 per cent in New York trading.
Treasury will swap its preferred stake of $49.1 billion for 1.66 billion shares of common stock and then sell the holdings in the open market, AIG said today in a statement. The Treasury investment will break even if shares are sold at about $29 each. The sales will happen in phases over 18 months to two years, said a person with direct knowledge of the plan who declined to be identified because the schedule isn’t public.
AIG, once the world’s largest insurer, turned over a majority stake to the government in exchange for a rescue that swelled to $182.3 billion. Federal Reserve Chairman Ben S Bernanke has said the bailout, a day after the September 2008 failure of Lehman Brothers Holdings, made him “more angry” than any other episode in the financial crisis.
“The government got lucky because the markets recovered and it looks like the bailout will work,” said Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore. “Economists will be debating for a long time about whether the rescue was a good thing. My concern is the next time a company starts to look iffy, it becomes a very convenient argument to jump in and say, ‘We’ll do another AIG’.”
Shares surge
The insurer rose $1.28 to $38.73 in New York Stock Exchange composite trading at 11.07 am AIG gained about 25 per cent this year through yesterday. It slipped 4.5 per cent last year and plunged 97 per cent in 2008.
AIG will retire its Federal Reserve credit line, using proceeds of asset sales, and issue stock to Treasury by the first quarter of next year, the New York-based insurer said in the statement. The debt on the Fed line is about $20 billion.
The company’s common shareholders, who hold about 20 per cent of the company, will have their stake diluted to about 7.9 per cent, AIG said.