AIG Recapitalization to Close Friday; Offering Expected in May

By and | January 12, 2011

Banks will meet in New York City Thursday to make their case for the right to sell the U.S. Treasury’s stake in American International Group, three people familiar with the matter said Wednesday.

The Treasury will own 92.1 percent of the bailed-out insurer after a recapitalization deal closes. AIG said Wednesday afternoon the deal will close Friday, and will lead to a $3.6 billion charge in the current quarter. It had been expected to take large charges related to the closing.

With that deal closed, sources have said a large secondary share offering — $10 billion or more — is expected sometime in the second half of May.

AIG Chief Executive Bob Benmosche described a “sense of joy” in closing the recapitalization, and said the next step for the company was to prepare for the share sale.

“We have to think about the need to do a capital raise and improve liquidity,” he said in an interview, though he declined to comment on timing, saying only “we want to be ready as soon as possible.”

The company and the government are expected to treat the sale much like an initial public offering, given its size and its significance as the effective return of AIG to widely held public ownership.

AIG is hoping to attract significant ownership from institutional investors, drawing in people who fled the stock after its September 2008 near-collapse, sources have said.

Both the Treasury and AIG will sell shares in the May offering; a person familiar with the situation said AIG aims to sell $3 billion in stock at that time.

Two of the people familiar with the bank meeting said the firms are likely to come in pitching for a fee of 75 basis points or less, in line with the fees on the IPO of General Motors Co last year.

Such a structure would be much less than usual for either an IPO or a secondary share offering of that size.

The location of the meeting is not clear, though it is expected to draw the top executives from the participating banks. A source familiar with the situation said Bank of America Chief Executive Brian Moynihan would be among those attending.

HUGE PAPER PROFIT

AIG shares, trading above $58, are expected to fall back to the mid-$40 range next weeë when stock warrants begin Trading, a source said Monday.

Even at that range, though, the government would be looking at a paper profit in the neighborhood of $27 billion.

That would mark a surprise ending to more than two years of tortured back-and-forth on the future of AIG. At one point the government bailout topped $182 billion, and the company was headed for a fire-sale breakup.

But Chief Executive Robert Benmosche, who came on board in August 2009, stopped the fire sale and led the company down a different path, selling off some assets while refocusing the business on U.S. life insurer SunAmerica and global property insurer Chartis.

One of the last pieces of the asset sale program fell into place Wednesday after more than a year of twists and turns. AIG said it struck a deal to sell Taiwanese life insurer Nan Shan for $2.16 billion.

(Reporting by Clare Baldwin and Ben Berkowitz in New York and Joe Rauch in Charlotte; Writing by Ben Berkowitz; Editing by Carol Bishopric and Richard Chang)

Was this article valuable?

Here are more articles you may enjoy.