Strong investor demand for American International Group stock is allowing the Treasury Department to reduce its ownership of AIG stock to 53% from 61%.
The Treasury said at mid-afternoon Monday that underwriters had exercised their option to increase the size of the initial public offering by 750,000 shares, meaning that they are purchasing approximately 24.6 million additional shares of AIG common stock at the public offering price of $30.50 per share.
The deal is a good one for the underwriters because AIG stock was up $1.065, or 3.4 percent at 2 p.m. to $32.4050 in consolidated New York Stock Exchange trading.
AIG itself has agreed to purchase 98,360,656 shares at the public offering price of $30.50, approximately a $3 billion investment.
In an investor’s note, John Nadel of Sterne Agee in New York said while the Treasury offering was “somewhat smaller than expected,” he sees the latest sale as part of a series of events regarding AIG securities likely to unfold over the next several months.
Nadel said that the latest Treasury sale was expected and the next event will be after Sept. 4th, when AIG will be free to sell its remaining 19% stake in American International Assurance, (AIA) its Asian life insurance business.
Nadel estimates the current value of that stake at $7.5 billion and he anticipates that AIG will use the proceeds of that sale, if consummated, to set the stage for another IPO of remaining AIG stock by the Treasury.
“We expect AIG will have buyback capacity of between $7.5 – $10 billion for the next secondary offering by the Treasury, meaning calendar year 2012 buybacks will likely end up totaling between $15.5 million to $18.billion,” Nadel said.
AIG has already repurchased $8 billion of its own stock from the Treasury this year.
In its latest update today of its stake in AIG, the Treasury Department said the most recent sale is expected to reduce the Treasury’s remaining investment in AIG to approximately $24.2 billion, consisting of approximately 871.1 million shares of common stock.
The Treasury said the government aid to AIG during the financial crisis totaled $182 billion, although guarantees and loans through other Federal Reserve facilities likely added to the total.
After giving effect to the offering, the government’s remaining investment of approximately $24.2 billion would represent a nearly 87% reduction from that original $182 billion commitment.
In addition to principal repayments, which have reduced the government’s remaining outstanding investment to $24.2 billion, the Federal Reserve and the Treasury have also received additional income beyond that from interest, fee, and other gains, the statement said.
That additional income beyond principal repayments totals $14 billion, including approximately $13 billion from the Federal Reserve’s investment and approximately $1 billion from Treasury’s investment, the statement said.