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American International Group (NYSE:AIG) announced today that it is planning to sell up to nearly 25% of its stake in the AIA Group Ltd. AIG will sell up to $2 billion USD in shares to raise funds for “general corporate purposes.” Its share price is holding strong above $34.50 per share and could easily reach a new 52-week high before the market closes today.
Giving the Government Their Money Back
The sale of the AIA shares is part of AIG’s overall plan to repay the $182 billion in government bailout money it received during the 2008 financial crisis. The company had $24.2 billion outstanding on the government loan as of 8 August 2012. The shares are being sold at a premium of 1.7% to their close on the Hong Kong Exchange last Thursday. Although the company had previously announced that it would sell its entire interest in AIA, CEO Bob Benmosche said that the timing is not right for a complete selloff at this time.
AIG entered into a massive restructuring of its operations in September 2008 with the goal of strengthening its financial condition, enhancing the enterprise value of its core businesses, and the US government’s interest in its business. The company has divested two dozen non-core businesses in the four years since the announcement of the plan.
In August the US Treasury sold $6 billion in AIG shares, reducing its stake in the company to 55%.
Giving Investors Their Confidence Back
In the weeks following the Treasury’s sale, AIG shares have increased over $4.00 per share to $34.81 on 5 September.
As AIG has accelerated its repurchase of shares held by the Treasury, its share price is up, and it earnings per share have increased. AIG intends to initiate at least one more buyback before the US general election in November, thus making the government a minority shareholder, or what one CEO once referred to as a pain in the posterior. As far as the government goes, it’s a sure bet that they will feel a lot less pain once the government’s position is a minority one.
AIG turned in a stellar second quarter and first half performance reported on August 2nd. Second quarter net income attributable to AIG was $2.3 billion with after-tax income of $1.9 billion, compared to $1.8 billion and $1.2 billion for the same period year-on-year in 2011, increases of 27% and 49.8% respectively. For the six-month period, net income rose 76.8% to $5.5 billion and after-tax operating income was up 48.8% to $4.9 billion.
In the second quarter report, Mr. Benmosche told investors that, “We are proud of what we have accomplished and believe we are close to achieving our goal of returning to America all that it provided to AIG during the crisis, plus a profit. Every day, the people of AIG continue to make significant progress in restoring our reputation in the communities we serve; respect for the AIG name has endured among our partners and customers. A rejuvenated and refocused AIG enables us to more fully integrate our global insurance operations, while continuing to build on our successes and respond to market and customer needs.”
