[h=3]By LESLIE SCISM, JEFFREY SPARSHOTT and ERIK HOLM[/h]The Treasury Department sold a massive chunk of American International Group Inc. stock Monday, ending the government's majority ownership of a company that in 2008 nearly toppled the financial system.
The deal is an achievement for the government, which has fully recovered the costs of its largest bailout after the AIG rescue drew heavy criticism from both the left and the right.
The sale is "another milestone on the path of a very successful program" for the U.S. government, said Douglas Elliott, a fellow at the Brookings Institution.
It also marks a turning point for AIG, which has sold billions of dollars in assets and sharpened its focus in a bid to return as quickly as possible to full private ownership.
"What the current management has done has been nothing short of remarkable," said Jim Ryan, an insurance analyst for Morningstar Inc. "They've worked very hard to get the company back on its feet."
The Treasury sold about 554 million shares to the public at $32.50 apiece for a total of $18 billion, in the fifth-biggest global follow-on stock offering since the financial crisis. The offering was the Treasury's fifth sale of AIG stock since early last year and reduced the government's stake in the company to about 22% from 92% in early 2011.
The price set Monday was above the government's cost basis of $28.73 a share, meaning taxpayers will earn a profit on the sale.
AIG itself bought about $5 billion of the shares, while the rest were mostly acquired by institutional investors. AIG shares fell 69 cents, or 2%, Monday at $33.30, on a day that saw a 0.4% decline in the blue-chip Dow Jones Industrial Average. The shares are up 44% this year but have lost more than 95% of their prebailout value.
The size of Monday's sale helped feed demand, some analysts said, as fund managers took comfort in knowing that the government, which at one point controlled more than 1.65 billion AIG shares, now has 317 million shares left to sell.
The sale marks a dramatic turnaround from 2008, when AIG was effectively nationalized as part of a financial-industry bailout.
U.S. authorities maintained that the teetering AIG, which had sold complex financial instruments to clients world-wide, had to be rescued to avert a then-worsening global financial crisis from spiraling out of control. The record bailout from Treasury and the Federal Reserve mushroomed to include as much as $182.3 billion in funds to support the company, though not all the money was used.
Treasury said the latest sale will mean the federal government has fully recovered its $182 billion commitment to AIG.
"Treasury and the Federal Reserve have now recovered a combined total of $194.7 billion...representing a positive return of $12.4 billion to date," Treasury said.
AIG, which is primarily a property-casualty and life insurer, has since shed its most toxic assets and returned to profitability.
"AIG has made a lot of progress over the past couple years in strengthening its core operations and exiting noncore businesses," said Bruce Ballentine, a senior credit officer at Moody's Investors Service.
Stock investors who bought the shares are betting that the price is low enough that it will rise. AIG shares trade at about half the company's book value, a measure of net worth.
The sale comes as insurers are struggling to boost prices, and their profits are damped by ultralow interest rates. Insurers invest the premiums paid by policyholders mostly in investment-grade bonds, and those yields have been falling as the Federal Reserve attempts to keep rates low as a way to rev up the weak economy and revive the housing market.
With Treasury's stake falling below 50%, a Fed spokeswoman confirmed Monday that AIG will now be regulated by the Fed as a savings-and-loan holding company, a result of AIG's ownership of a tiny thrift called AIG Federal Savings Bank. The thrift is a Delaware-based company with one office, 37 employees and deposits of $839 million, giving it a market share of 0.26% in Delaware, according to federal regulators.
Some Wall Street analysts have speculated that the Fed could limit AIG's use of cash to buy back more shares from Treasury.
AIG CEO Robert Benmosche has said executives at AIG "are giving thought to whether we should now close the bank" to avoid some federal scrutiny. But such a move would likely be only temporary; analysts say AIG is in short order likely to be deemed "systemically important," a new designation that would mean the company would be subject to closer scrutiny from the Fed even if AIG rids itself of the bank.
The deal is an achievement for the government, which has fully recovered the costs of its largest bailout after the AIG rescue drew heavy criticism from both the left and the right.
The sale is "another milestone on the path of a very successful program" for the U.S. government, said Douglas Elliott, a fellow at the Brookings Institution.
It also marks a turning point for AIG, which has sold billions of dollars in assets and sharpened its focus in a bid to return as quickly as possible to full private ownership.
"What the current management has done has been nothing short of remarkable," said Jim Ryan, an insurance analyst for Morningstar Inc. "They've worked very hard to get the company back on its feet."
The Treasury sold about 554 million shares to the public at $32.50 apiece for a total of $18 billion, in the fifth-biggest global follow-on stock offering since the financial crisis. The offering was the Treasury's fifth sale of AIG stock since early last year and reduced the government's stake in the company to about 22% from 92% in early 2011.
The price set Monday was above the government's cost basis of $28.73 a share, meaning taxpayers will earn a profit on the sale.
AIG itself bought about $5 billion of the shares, while the rest were mostly acquired by institutional investors. AIG shares fell 69 cents, or 2%, Monday at $33.30, on a day that saw a 0.4% decline in the blue-chip Dow Jones Industrial Average. The shares are up 44% this year but have lost more than 95% of their prebailout value.
The size of Monday's sale helped feed demand, some analysts said, as fund managers took comfort in knowing that the government, which at one point controlled more than 1.65 billion AIG shares, now has 317 million shares left to sell.
The sale marks a dramatic turnaround from 2008, when AIG was effectively nationalized as part of a financial-industry bailout.
U.S. authorities maintained that the teetering AIG, which had sold complex financial instruments to clients world-wide, had to be rescued to avert a then-worsening global financial crisis from spiraling out of control. The record bailout from Treasury and the Federal Reserve mushroomed to include as much as $182.3 billion in funds to support the company, though not all the money was used.
Treasury said the latest sale will mean the federal government has fully recovered its $182 billion commitment to AIG.
"Treasury and the Federal Reserve have now recovered a combined total of $194.7 billion...representing a positive return of $12.4 billion to date," Treasury said.
AIG, which is primarily a property-casualty and life insurer, has since shed its most toxic assets and returned to profitability.
"AIG has made a lot of progress over the past couple years in strengthening its core operations and exiting noncore businesses," said Bruce Ballentine, a senior credit officer at Moody's Investors Service.
Stock investors who bought the shares are betting that the price is low enough that it will rise. AIG shares trade at about half the company's book value, a measure of net worth.
The sale comes as insurers are struggling to boost prices, and their profits are damped by ultralow interest rates. Insurers invest the premiums paid by policyholders mostly in investment-grade bonds, and those yields have been falling as the Federal Reserve attempts to keep rates low as a way to rev up the weak economy and revive the housing market.
With Treasury's stake falling below 50%, a Fed spokeswoman confirmed Monday that AIG will now be regulated by the Fed as a savings-and-loan holding company, a result of AIG's ownership of a tiny thrift called AIG Federal Savings Bank. The thrift is a Delaware-based company with one office, 37 employees and deposits of $839 million, giving it a market share of 0.26% in Delaware, according to federal regulators.
Some Wall Street analysts have speculated that the Fed could limit AIG's use of cash to buy back more shares from Treasury.
AIG CEO Robert Benmosche has said executives at AIG "are giving thought to whether we should now close the bank" to avoid some federal scrutiny. But such a move would likely be only temporary; analysts say AIG is in short order likely to be deemed "systemically important," a new designation that would mean the company would be subject to closer scrutiny from the Fed even if AIG rids itself of the bank.