Treasury To Become Minority AIG Shareholder for First Time Since 2008

The U.S. Treasury is expected to complete another sale of AIG stock in the coming weeks, leaving the government with a minority stake of less than 20 percent for the first time since it controversially rescued AIG in 2008. If $18 billion is sold at AIG’s last traded price of $33.99 on Friday, the Treasury would see its 871 million common shares dwindle to 262 million shares. AIG also announced on Sunday that it will be buying back up to $5 billion of the shares from the latest public offering.

Since the financial crisis, U.S. taxpayers have been made to pay for AIG management’s poor bet on credit derivatives that almost led to the company’s demise. In 2008, the U.S. government stepped in and bailed out the company as concerns about AIG’s solvency spread fear in the financial markets. While $23 billion of the $182 billion invested in AIG by the government remains unpaid, the government is expected to eventually book a net profit on the bailout operation.

At the height of the financial crisis, the U.S. Treasury owned up to 92 percent of the company. After a series of block sales of around $6 billion, the Treasury has pared down its stake in AIG to 53% in August. The sale announced on Sunday will be substantially larger than the previous block sales, and it should put a cap on the price of AIG stock for the next few days until details of the sale become clearer.

Nevertheless, this sale is expected to be positive for AIG shareholders. Because the market is factoring in large block sales of AIG stock by the government, share prices of the company have been artificially suppressed in recent years.  As the U.S. Treasury pares down its stake, this overhang will gradually decrease and the value of AIG will be increasingly determined by the more richly valued property-casualty and life assurance business.

Written by SiHien Goh.