Treasury Debuts $4.5B AIG IPO

WASHINGTON, DC-Another chapter is closing in the story of the 2008 crash and Washington’s efforts to mitigate the damage. Monday morning, the US Department of Treasury revealed that it has launched an underwritten public offering of $4.5 billion of American International Group’s common stock. Briefly, in 2008 AIG was caught short by the liquidity crunch along with numerous other financial institutions. In response, the Federal Reserve Bank created an $85 billion credit facility as a rescue measure that was later enhanced with an additional $70 billion and $60 billion credit line; in return, AIG issued a stock warrant for 79.9% of the equity in the company.

AIG—like many, but not all—of the institutions rescued during this period has been steadily repaying its loans, in its case by selling off subsidiaries and assets. Now it is in such a position that it can, as it has said it intends to do, purchase up to $3 billion of the common stock being sold by Treasury.

That is either a sign of confidence or that AIG thinks the IPO, at $30.50 per share, is underpriced, Linus Wilson, assistant professor of Finance at the University of Louisiana at Lafayette, tells GlobeSt.com. Its purchase is not, however, an automatic guarantee of healthy profits for AIG or its shareholders, he notes. “Many financials repurchased their shares in 2007 and their remaining shareholders regretted it in 2008 when the crisis intensified.”

More to the point, it is still unclear whether the IPO will benefit the taxpayers that bailed out AIG. Treasury has sold 46% of its stake in AIG, which started at 1.655 billion shares when  Treasury’s preferred stock holdings were converted into a 92% stake of common stock, Wilson explains. “Given that the U.S. Treasury sells its holdings at a price at or above $29 per share, it will break even on its rescue of AIG," he says. "This offering at $30.50 per share brought taxpayers closer to the goal of exiting AIG with a modest profit.” Whether or not taxpayers exit AIG with a profit depends on the AIG’s share price going forward, Wilson concludes.

Citigroup Global Markets, Deutsche Bank Securities, Goldman, Sachs & Co., and J.P. Morgan Securities have been retained as joint bookrunners for the offering. Other underwriters are expected to be added. The underwriters in the offering also have a 30-day option to purchase up to an additional $675 million in common stock from Treasury.