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U.S. Plans for Citigroup, AIG Diverge

The appetite for Citi and AIG shares is creating two different bailout scenarios.



) -- The U.S. government is apparently taking divergent paths on the road to recovery for

American International Group

(AIG) - Get American International Group, Inc. Report



(C) - Get Citigroup Inc. Report


Media reports are saying the U.S. Treasury is moving closer to a plan for the government to exit its stake in AIG. Separately, market observers are becoming increasingly concerned that the U.S. government will not meet its year-end target for divesting shares in Citigroup.

A plan could be announced as early as this week from the U.S. Treasury Department regarding the government's remaining $49 billion preferred share stake in AIG, according to a report from



The report states that one of the options being considered is to exchange the government's preferred stake in AIG into common equity, similar to what the U.S. Treasury did with a portion of its stake in Citigroup in the summer of 2009. A conversion of the shares could start in the first half of 2011,



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The exchange would initially raise the U.S. Treasury's stake in AIG to 90% from 80%, however the plan would be to eventually sell that stake gradually in the markets, the report explains.

AIG has received a whopping $182 billion in government bailout funds, between taxpayer funds through the Treasury and credit lines from the

Federal Reserve

, since the 2008 financial crisis.


, which has been moving closer to independence in recent months, said over the weekend that it expects its

Asian life-insurance unit

to have an operating profit of at least $2 billion for the fiscal year ending Nov. 30. It plans to list the unit on the Hong Kong Stock Exchange next month.

It is also in the process of selling American Life Insurance Co. to


(MET) - Get MetLife, Inc. Report


Separately, the rehabilitation of Citigroup may take longer than first planned, the

Financial Times

reported on Sunday.

According to Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette, by the end of August, less than half of the taxpayers' stake, 3.5 billion shares of 7.7 billion in total shares granted to the government have been sold. The average price they were sold at was $4 per share, Wilson writes in an email, citing U.S. Treasury data.

Observers, including Wilson, have suggested that the Treasury should implement a secondary stock offering in order to get rid of the shares.

The Treasury has been working this year to unload its hefty common equity stake, but in recent months those sales have slowed, partially due to the reduced trading volume in Citigroup stock, according to the article. Treasury currently owns about 17% of Citigroup shares.

The Treasury announced in July

that it had authorized

Morgan Stanley

(MS) - Get Morgan Stanley Report

to sell an additional 1.5 billion Citi shares through September 30 - its third in a series of trading plans. The arranged trading plan will expire on Thursday, even if all the shares have not been sold.

AIG shares were most recently rising 5.1% to $38.32 on Monday. Citigroup shares were flat at $3.89.

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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