5/04/2012 @ 5:09PM

Treasury To Sell More AIG Stock, Insurer Says 'We'll Take $2 Billion Worth'

American International Group blew past earnings estimates after the bell Thursday, and even though mark-to-market gains were the force behind the results there are also clear signs the insurer’s turnaround continues to progress. And even though the stock stumbled Friday, the Treasury Department appears to believe the market is going to recognize that progress.

After the close the Treasury announced the launch of a public offering of AIG shares, the size and price of which will be revealed once the deal prices. The government also said AIG has indicated it intends to purchase up to $2 billion of the shares sold in the offering, which will reduce Treasury’s stake from its current level of 70%.

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BofA Merrill Lynch, Citigroup Global Markets, Credit Suisse Securities (USA), Deutsche Bank Securities, Goldman, Sachs & Co., J.P. Morgan Securities and Morgan Stanley are joint bookrunners, underwriting the offering.

The September 2008 bailout of AIG has been through several iterations, but nearly four years later the day of the government’s complete exit (and the removal of the overhang on AIG shares) is getting closer. The Federal Reserve Bank of New York has sold off the entire Maiden Lane II portfolio of mortgage-backed securities bought from AIG and announced Friday it is accepting bids for another batch of collateralized debt obligations from Maiden Lane III.

Shares of AIG lost 3.8% to $32.83 Friday. The Treasury Department, which once owned more than 92% of AIG’s common shares outstanding, sold a sliver of its stake for $29 per share in May 2011, then sold another portion of its shares, including some repurchased by the insurer, at the same price in early March.

Joshua Stirling at Bernstein Research said his initial read is that the latest sale could go one of two ways, and “the question will be how much do they sell.” Treasury could try to to price a small offering — perhaps similar in size to the last two — at a discount to Friday’s close of a few percent and get maybe $30-$32 a share. That could have the impact of establishing that $29 is not a ceiling for the rest of the government’s stake.

However, there are plenty of money managers who are wary of having anything to do with AIG until the Treasury is out of the picture, so the other option — a larger offering at or around $29 — would make that day draw closer and perhaps entice a few of those more hesitant investors.

Treasury To Sell More AIG Stock, Insurer Says 'We'll Take $2 Billion Worth' - Forbes