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AIG Buyback Program Doesn't Change Insurer's Priority to Reduce U.S. Stake

Source: WSJ - Erik Holm & Serena Ng

Posted on 07 Nov 2011

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American International Group Inc. (AIG) Chief Executive Robert Benmosche said the insurer's priority is reducing the government's stake in the company, despite a new buyback program that will allow it to purchase shares from private investors.

But with AIG's shares currently trading well below a price that will allow the U.S. government to sell its stake at a profit, Mr. Benmosche said the $1 billion repurchase authorization announced Thursday night will allow the company to "take advantage of where the market is today."

The government owns 77% of AIG after bailing out the company in 2008. That is down from 92% after the U.S. Treasury sold $5.8 billion of its holdings at $29 a share in a "re-IPO" earlier this year. AIG's stock has since declined by 15%, which is likely to delay further sales.

Our priority is to be able to work with the U.S. Treasury so that we can continue to be buying back shares from their shares, which represents overhang on the stock," Mr. Benmosche said on a conference call with analysts and investors Friday morning.

The buyback program is the company's first since its bailout. Mr. Benmosche said AIG couldn't repurchase its own shares before the "re-IPO" because it was still getting some financial support from the Treasury via a $2 billion contingent liquidity facility. AIG sold new shares alongside Treasury's stock sale to raise funds to replace that facility.

Other financial firms, including life insurer MetLife Inc. and J.P. Morgan Chase & Co., have been blocked by the Federal Reserve from buying their own shares at this time. MetLife is working to wind down its banking operations and surrender its banking charter to escape such federal restrictions. AIG, in contrast, isn't a bank holding company and didn't require approval for the $1 billion buyback program, though it notified Treasury of its plans, according to a person familiar with the matter.

AIG's buyback comes as the Atlantic hurricane season winds down and the potential of massive insurance losses from a storm fades for the year.

AIG stock is selling at about half its book value, a measure of assets minus liabilities. On Friday morning, the shares were down 4.2% to $23.59.

"There are certain anomalies in the stock, and we feel it is an opportunity to take advantage of what the market has done," Mr. Benmosche said.

He said the company had no timetable for buying back the stock.