The latest sale of American International Group stock now underway by the U.S. Treasury means that the federal government has now fully recouped its investment in the company and has already made $15.1 billion, AIG and Treasury officials said Tuesday afternoon.
The decision of the government to reduce its stake so drastically prompted Standard & Poor’s to change the outlook on the AIG holding company to negative from stable, but S&P did reaffirm its ‘A-’ long-term counterparty credit rating.
“We are no longer giving credit for government support in the holding-company rating,” S&P officials say.
S&P credit analyst John Iten also says he expects Treasury to sell its remaining holdings in the “near to medium term.”
Iten says S&P changed its outlook on AIG because, while results of its core Chartis and SunAmerica operating companies are improving, the government decision to lower its ownership stake of AIG faster than expected means there is greater risk associated with paying off its current debt.
The latest sale will reduce Treasury’s ownership of AIG to 21.3 percent from the current 53.4 percent, Treasury and AIG officials say.
Treasury has also granted a 30-day option to the underwriters for the offering to purchase up to an additional approximately 83.1 million shares to cover over-allotments, if any.
That government’s ownership stake will drop to approximately 15.9 percent if the over-allotment option is exercised in full, AIG officials said.
According to S&P, the total return to the U.S. government, if all shares are sold, will be $20.7 billion.
“This offering, Treasury’s largest to date, makes America whole on its investments in AIG plus a profit,” says Robert Benmosche, AIG president and CEO.
“We are close to achieving what most outside AIG thought unimaginable. The people of AIG never lost faith, kept working, and are grateful for being given the chance to make good on this goal,” Benmosche adds.
According to Benmosche, the Treasury and the Federal Reserve’s combined $182 billion commitment made to stabilize AIG during the financial crisis “is now fully recovered.”
He says that through repayments of principal and reductions/cancellations in commitments ($176.1 billion), as well as additional income from interest, fees and other gains ($18.6 billion), Treasury and the Federal Reserve have now recovered a combined total of $194.7 billion (assuming no exercise of the underwriters’ over-allotment option), representing a positive return of $15.1 billion to date compared to the original combined $182.3 billion commitment.
Future sales of Treasury’s remaining AIG common stock holdings will provide an additional return to taxpayers, Benmosche says.
Treasury Sunday night said it was offering the 553.8 million shares to an underwriting group, which Monday offered it to the public at $32.50 a share.
Simultaneously, AIG said it would purchase up to $5 billion of that stock.
Editor’s Note: The Treasury announced Tuesday afternoon that underwriters had agreed to exercise their option to buy all of the additional $83.1 million shares of AIG stock through an over-allotment option. Sale of the additional shares will raise another $2.7 billion from the offering. As noted by S&P in its ratings note, that brings the total value of the offering to $20.7 billion and will reduce the Treasury Department’s holding of AIG common stock to 15.9 percent. The shares are being sold at $32.50 a share.