Uncle Sam Prepares to Dump AIG Shares

The U.S. Department of Treasury has agreed to sell $5 billion of shares in American International Group Inc. (NYSE:AIG) in a stock offering in which the bailed-out insurer will buy back $2 billion of the total, while the rest of the 163.9 million shares will be sold to the public. The Treasury is selling the shares at $30.50 each, just below AIG’s closing price on Friday of $32.83. The transaction will reduce the government’s stake in the insurer to 63 percent, from 70 percent, according to an e-mailed statement yesterday.

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CEO Robert Benmosche has been selling assets to raise funds to buy back shares from the Treasury. In March, the company said that dividends from insurance subsidiaries coupled with asset sales, including divesting its stake in Hong Kong-based AIA Group Ltd., would allow it to generate as much as $30 billion to be returned to shareholders by the end of 2015.

This marks the third of the Treasury’s AIG offerings. The first raised $5.8 billion in 2011, at which time AIG itself sold 100 shares for $2.9 billion to demonstrate access to the capital markets and satisfy a condition of its bailout. AIG bought half of the Treasury’s second offering in March, using the funds it raised from selling its stake in AIA.

The U.S. rescued AIG in 2008 with a bailout that swelled to $182.3 billion as the government extended it more credit and reduced the interest it charged in an effort to keep the bank afloat amid huge mortgage-related losses. The government needs to average $28.72 per share to break even on its investment. The Treasury priced shares at $29 each in its first two offerings.

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