American International Group Inc (AIG) struck a deal to repay the Federal Reserve, the regulator that first bailed out the insurer in 2008, and then focus on retiring obligations to the US Treasury Department.
“It represents a great step forward for AIG and for the taxpayers to effectively narrow the number of counterparties from two to one,” said Clark Troy, senior analyst at Aite Group in Chapel Hill, North Carolina. “We’ve had a number of steps in a row in AIG’s recovery process go off without a hitch.”
AIG will use proceeds from the sales of two non-US life insurers to repay the line, on which it owed about $21 billion as of last week, the company said yesterday. Chief Executive Officer Robert Benmosche is focusing on global property-casualty coverage and domestic life and retirement units to entice private investors to replace the government capital that propped up the firm after losses tied to subprime home loans.
Treasury, which invested about $49 billion in New York- based AIG, plans to convert its preferred stake into 1.66 billion shares of common stock, or 92 per cent of the total, by March 15. The securities will then be sold to private investors.
Treasury expects underwriters to be selected by early next year for an offering of some of its stake, and will determine how many shares to sell based on market conditions, according to a person familiar with the plan. The person, who declined to be identified because the plan is private, said it’s too early to estimate how much stock would be sold in the first offering.
‘Selling into strength’
The insurer had gained about 41 per cent this year through yesterday on the New York Stock Exchange to $42.22. The Treasury investment will break even if shares are sold at about $29 each.
AIG may raise as much as $3 billion in a share sale, under the deal. The insurer last month sold $2 billion of bonds in its first offering since the bailout.
Improving results at operating units will attract private capital, said Robert Haines, an analyst at CreditSights Inc in New York. Earnings from insurance operations that AIG intends to keep exceeded $4 billion in the six months ended September 30.
“They’ll be selling into strength, and where they’re selling into strength they’ll be moving a lot of stock,” Haines said. “There’s a lot of interest in AIG again.”
The US is selling holdings in financial firms that taxpayers bailed out at the depths of the credit crisis. The Treasury this week divested its remaining stock in Citigroup Inc for $10.5 billion and recorded a profit of about $12 billion from that bank’s bailout, including share appreciation, dividends and gains from other securities.
‘Utter collapse’
Treasury aims to raise at least $15 billion from an offering of AIG shares in the first quarter of next year, the Wall Street Journal said, citing unidentified people.
AIG’s Fed credit line, originally $85 billion, was created in 2008 to avoid a failure of the company and what Treasury Secretary Timothy F Geithner has said would have been an “utter collapse” of the economy. AIG said it will take a charge of about $4.7 billion tied to the close of the line.
The bailout swelled to $182.3 billion as it was revised at least four times to make more funds available, lower interest payments and to give the company additional time to sell assets. AIG divested a majority stake in AIA Group Ltd in October for $20.5 billion and sold American Life Insurance Co last month to MetLife Inc for $16.2 billion.
