Updated with afternoon market action, economic news, and comment from Sterne Agee analyst John Nadel.
NEW YORK (TheStreet) -- American International Group (AIG) on Thursday announced that it was selling up to $2 billion in shares of AIA Group Ltd. to a group of private investors, partially funding a new authorization for AIG to buy back up to $5 billion in common shares.
AIG spun-off AIA Group of Hong Kong in 2010, netting about $20.5 billion at that time, and selling another $6 billion worth of the shares in March.
AIG's $5 billion share repurchase authorization is expected to be acted upon quite soon, through another deal to repurchase common shares held by the U.S. Treasury. Following a repurchase of about $3 billion government-held shares in August, the government was left holding 53% of AIG's shares, which were worth about $31.9 billion, as of Wednesday's close, at $34.81.Deutsche Bank analyst Joshua Shanker early on Thursday reiterated his "Buy" rating for AIG, while raising his price target by $2 to $42, saying that he now expects the next government sale of AIG shares "to be a large offering," that "AIG will be a significant repurchase," and that "a repurchase of $10 billion would be [book value per share]-accretive by $7-8." While raising his price target for AIG because of the expected increase in book value, Shanker expects the Federal Reserve "to exercise its jurisdiction" over the company, and "request a moratorium on further capital management activities until it can author and apply a stress test to AIG's capital adequacy." Following the next government offering and AIG buyback, Shanker expects AIG to suspend share buybacks until the second half of 2013, causing him to lower his 2013 EPS estimate for the company to $3/60 from $3.90. Although the government has sold some common shares held in bailed-out companies into the open market, its slow strategy to unwind from AIG through company buybacks has been working out well for all parties, as the shares have risen 50% year-to-date through Wednesday's close. Sterne Agee analyst John Nadel later on Thursday said that AIG's shares were "likely to come under considerable pressure," since "both the sale of AIA and the buyback authorization are meaningfully below both our and consensus expectations." The analyst had been factoring a sale of AIG's full $7 billion AIA stake and a $9 billion common share buyback into his earnings estimates.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV