AIG Buybacks Getting a Little Stressed: Street Whispers

Weiss Ratings senior financial analyst Gavin Magor says that "any company facing AIG's 2008 disaster would have loved to have been granted four years and limitless government cash."

"In return for the bailout, AIG was initially being forced to break up the conglomerate," he says, "but the company was granted an indefinite stay of execution, which they took full advantage of, to maintain their leadership in many area of insurance, especially in price-sensitive areas like property and casualty, where there were rumors of complaints that they were underpricing the market, simply to gain control."

Taxpayers bought AIG the most valuable thing on Wall Street: time.

In return, with Monday's sale of AIG shares, the "Treasury and the Federal Reserve have now recovered a combined total of $194.7 billion" from the AIG bailout, including profits on the sale of shares and interest payments on loans, "representing a positive return of $12.4 billion to date compared to the original combined $182.3 billion commitment," according to the Treasury.

Underwriters have the option to purchase an additional 83,076,922 shares over the next 30 days, which could bring the government an additional $2.7 billion.

Treasury Secretary Tim Geithner said that "taking action to stabilize AIG during the financial crisis was something the government should never have had to do, but we had no better option at the time to protect the American economy from the damage that would have been caused by the company's collapse,"adding that "to stabilize and then restructure the company with a very substantial positive gain for the American taxpayer is a significant accomplishment, but we need to continue the critical task of implementing Wall Street reform so that the American economy is never put in this position again."

Be that as it may, it's all water under the bridge for investors, who need to decide if holding shares in AIG is still a good deal.

At Monday's close, AIG's shares traded for less than 10 times the consensus 2013 EPS estimate of $3.47, among analysts polled by Thomson Reuters. Among 18 analysts polled, 10 rate the shares a "Buy," while the remaining eight have neutral ratings. That's a pretty strong vote of confidence, and the consensus price target of $38.21 implies another 15% upside for the shares.

Sterne Agee analyst John Nadel last week called AIG's announcement of the sale of $2 billion AIA shares "a much smaller portion than expected," and said there was "no obvious answer" as to why the company didn't sell more of its $7 billion stake in the Asian insurer.

On the bright side, AIG has at least $5 billion more in potential fuel for additional buybacks, once the company navigates its first round of Federal Reserve stress tests next early next year.

Interested in more on Capital One Financial? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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