AIG: Financial Winners & Losers

While GDP and Bernanke were dominating headlines, investors got more bullish about AIG shares.
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NEW YORK (

TheStreet

) -- Bank stocks were mixed on Friday morning, following news that the economy grew last quarter and that the government is prepared to step in if something goes awry.

Outside of the banking sector,

American International Group

(AIG) - Get Report

was up 2.1% at $34.71, as speculation about its impending spin-off of a life-insurance division persisted.

Much like the broader market, the KBW Bank Index had been alternating between positive and negative territory as

Federal Reserve

Chairman Ben Bernanke gave a speech about the economy and monetary policy. By 10:15 a.m., the index was up 0.5% pat 43.42, ahead of the

Dow Jones Industrial Average

, which was up just 0.2%.

Big money-center bank stocks were mostly tracking higher, with

JPMorgan Chase

(JPM) - Get Report

up 0.7% at $35.86,

Wells Fargo

(WFC) - Get Report

up 0.7% at $23.66 and

Bank of America

(BAC) - Get Report

up 0.4% at $12.52;

Citigroup

(C) - Get Report

was flat at $3.64. Wall Street behemoth

Goldman Sachs

(GS) - Get Report

, however, was down 2.1% at $138.87 and

Morgan Stanley

(MS) - Get Report

down 0.2% at $24.58.

Earlier on Friday, the Commerce Department lowered its estimate for second-quarter economic growth to 1.6% from 2.4%. While the decline wasn't necessarily a good thing, the market had anticipated a lower revision.

Meanwhile, in his speech in Kansas City, Bernanke cited ongoing concerns regarding housing, jobs and confidence. He listed all the atypical tools the Fed has used since the crisis erupted, including purchasing unconventional assets to reinvesting Treasury-bill dividends to spur private-market demand. Bernanke added the government is prepared to use all the tools in its toolbox to prevent a sharp downturn once again.

"The committee will certainly use its tools as needed to maintain price stability -- avoiding excessive inflation or further disinflation -- and to promote the continuation of the economic recovery," said Bernanke.

Outside of the banking space, the rumor mill continued to churn about AIG's divestiture of an Asian life-insurance subsidiary.

AIG has been trying to sell its AIA division for several months, and came close with a $35 billion bid from Prudential Plc. That deal fell apart in late-May, after AIG's board rejected a revised offer of $30 billion. Since then, questions have been raised about how much private capital AIG can secure for a Hong Kong IPO, given the number of Chinese banks seeking funds at the same time.

Sovereign wealth funds and large institutional investors are willing to support a large chunk of the offering as "cornerstone" investors, according to a

Reuters

report, citing anonymous sources. However, the newswire said AIG decided against offering a piece of AIA to "strategic" investors, who are required to hold a stake for a longer period of time.

The presence of high-profile investors in the offering is important because it boosts confidence in the market, allowing AIG to demand better pricing. Last month, Agricultural Bank of China broke records by raising more than $19 billion in an IPO. While AIA is viewed as a strong business - and could yet top that number with a public offering - it's unclear whether equity investors have appetite for another large deal.

The AIA deal, along with AIG's plan to sell another subsidiary to

MetLife

(MET) - Get Report

for $35.5 billion, are part of its progress in repaying roughly $70 billion in outstanding taxpayer debt

--Written by Lauren Tara LaCapra in New York.

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