Wall Street spent the day waiting for the U.S. Treasury Department and American International Group Inc. (AIG) to sell 300 million shares of AIG common stock.
Word finally leaked out around 5:30 p.m. that the underwriters were pricing the shares at $29.
The Treasury Department sold 200 million of the 1.7 billion common shares of AIG stock that it held. AIG, New York (NYSE:AIG), sold 100 million, and the underwriters had an option to buy up to 45 million additional shares from the Treasury Department if demand is strong.
The deal could have a total maximum value of $10 billion, with $5.8 billion going to the Treasury Department as a result of the 200 million share sale; $2.9 billion going to AIG; and as much as $1.3 billion in additional cash going to the Treasury Department if the underwriters use the 45 million over-allotment option.
Securities analysts have estimated that the Treasury Department might need to get a price of $28 to $29 per share to break even on its investment in AIG.
The Treasury Department started the day owning about 92% of AIG’s 1.8 billion outstanding common shares because of government efforts to help AIG survive the 2008 credit market freeze.
Before the slump began, an AIG unit wrote credit default swaps that protected counterparties against the risk of defaults on mortgage-backed securities (MBS). In 2007 and 2008, the MBS market slumped, and then the credit markets shut down. AIG needed large amounts of extra capital to meet MBS collateral demands at a time when private sources of capital were unavailable.