Posted on 07 Aug 2012 by Neilson
The Treasury Department sold another $5 billion-plus of AIG stock, but the selling isn't done yet, and may actually be speeding up.
In AIG's latest deal, the agreement creates a 30-day lockup period for Treasury, meaning no more shares can be sold during the next month. But that is shorter than the lockups on the previous two offerings this year, and Treasury has so far moved to sell soon after they were free to do so, as shares have been above the $29 price it views as break-even on the deal.
In the March offering the lockup was for 60 days, and Treasury promptly sold in May. That May offering came with a 90- day freeze, which expired this month.
That means Treasury, which still owns 53% of the insurance giant after Friday night's sale and the subsequent over- allotment, has the ability to further pare that stake in early September.
Morgan Stanley analysts said today that Treasury sales "loom large" in the second and third quarters, and that they expect AIG to keep buying back shares. AIG repurchased $3 billion itself from Treasury as part of Friday's deal.
As WSJ reported last week, AIG is looking to get Treasury's stake below 50%, and several analysts who follow the company say the government's stake could be cut below 30% before the November elections, if asset sales expected by AIG in the coming months help the company raise a total of $10 billion to $15 billion in excess capital.
The next Treasury lock-up expiration would be timed neatly with the end of AIG's own lockup on the remaining 19% stake it holds in in pan-Asian life insurer AIA Group Ltd., which is currently valued at over $7 billion.
However, if Treasury's stake falls below 50%, the Federal Reserve becomes AIG's primary regulator, which could make more repurchases difficult. Morgan Stanley said beyond the second-half of this year, "we are more nervous on the pace and amount of buybacks as AIG expects to then be regulated by the Federal Reserve which has frowned on outsized capital management by large systemically important financial institutions."