Treasury to sell $18B Stake in American International Group

Treasury to sell $18B Stake in American International Group
By American International GroupSVG version by JBarta ( [Public domain], via Wikimedia Commons

According to an article by  MICHAEL J. DE LA MERCED of the New York Times, the US Treasury plans to sell an additional $18 billion stake in American International Group, Inc. (NYSE:AIG). The sale would halve the Treasury’s stake in American International Group, Inc. (NYSE:AIG), which was rescued in the aftermath of the Lehman Brothers collapse in September 2008.

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Treasury to sell $18B Stake in American International Group

After this sale is complete the Government will own only 23% of the large insurance company. Last week, American International Group, Inc. (NYSE:AIG) announced plans to sell its stake in its Asian Insurance unit AIA Group Ltd. (HK:1299),  for $5 billion. The board of Directors authorized a buy-back of up to $5 billion of shares. Many analysts had assumed that the buyback would be closer to $10 billion.

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The Government is currently the largest shareholder of AIG stock. The second largest shareholder is value investor Bruce Berkowitz’s Fairholme Fund (FAIRX).

The sell-side analysts are at work even on a Sunday! Goldman Sachs has just come out with a note on the news.

Goldman Sachs is updating their estimates to reflect a reduction in 3Q12 buybacks from $10bn to $8bn, as they had previously assumed this buyback would be larger ($7bn vs. $5bn). In addition, Goldman continues to expect that AIG will monetize its remaining stake in AIA per its stated intention to sell it down (worth $6bn at current levels). They believe those dollars should be available for deployment once the regulatory outlook becomes clearer, which they conservatively estimate will not be earlier than 2014. Thus although the near-term deployment is lower than we expected, AIG appears to be funding $3bn of this buyback outside of AIA shares, which implies more capital flexibility than  they had previously estimated.

As a result of the reduction in buybacks (and thus a higher share count), GS’ defined core EPS estimates for AIG fall by $0.03 to $2.56 in 2012, fall by $0.17 to $3.43 in 2013, and fall $0.01 in 2014 to $4.29. Goldman Sachs’ 2012-2014 EPS estimates on an as-reported basis are now $4.21/$3.43/$4.29 from $4.27/$3.60/$4.30

This news is also a political victory for Barack Obama. Many Americans opposed the bailout of AIG by President Bush’s Treasury Secretary Henry Paulson, and current Federal Reserve Chairman, Ben Bernanke. With the election less than 60 days away, Obama can point to the success of the bailout.

Disclosure: No position in any securities mentioned

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