Up until Monday, when the U.S. Treasury Department sold $18 billion worth of AIG shares at a price of $32.50 a share, the government was taking a steady approach this year in unloading its holdings of the insurer's common shares, which it received in April 2009 in exchange for $69.8 billion in preferred shares as part of the insurer's massive bailout.
Before Monday's sale, the Treasury controlled 53% of AIG's common shares, after previous government offerings of common shares in March, May and August were repurchased by AIG. Those benefited all shareholders -- including the government -- by reducing the share count and pushing up earnings estimates, along with the share price.
The Treasury now has a minority stake of 21.5% in the company.AIG's shares were up 44% year-to-date through Monday's close at $33.30. When AIG last week announced it would sell up to $2 billion in shares of AIA Group Ltd., partially funding a new $5 billion share buyback authorization, some analysts who had anticipated much higher buybacks were disappointed, however, there was no indication of just how big a block of shares the Treasury might sell. The Treasury's decision to dump an additional $13 billion in shares, on top of what AIG bought back, signals that the government no longer thinks the slow approach to unwinding its position is in the best interests of taxpayers. When the Federal Reserve holds its next round of stress tests for very large "systemically important" financial institutions early next year, AIG will be included among the companies required to submit detailed capital plans to the regulator. Sterne Agee analyst John Nadel -- who rates AIG a "Buy," with a $39 price target -- said last week that regulators may have already "informed AIG that it shouldn't push its capital [management] activities any higher."
Too big to fail.After AIG faced a liquidity crisis and appeared unable to meet collateral requirements for its credit default swap counterparties, the Federal Reserve and the Treasury began the company's epic bailout. At the time, few envisioned a happy ending for the insurer.
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