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Government to Start Selling Off AIG

This article was written by in Economy. 7 comments.

AIG, the giant global insurance company bailed out by taxpayers during the heat of a financial crisis, still owes the United States government over $100 billion. Part of the bail-out agreement involved the government receiving preferred shares in the company, becoming a significant owner.

According to the news today, the company wants to start paying back this remaining balance next year. At the same time, the government will reduce its ownership in the country. Preferred shares will be converted to common shares which can then be sold on the open market, a process that will apparently increase the government’s stake in the company for a short time.

AIG has been paying back the government for some time already, selling off non-core businesses and other assets to raise the cash.

If the price per share of AIG common stock increases throughout the year, the government could make a profit on the investment in the company. If you’re going to buy shares of AIG, it might be a good idea to get in now before the government starts looking for buyers. I don’t own any AIG stock right now, but I might buy some soon.

Source: CNBC

Updated February 10, 2011 and originally published September 29, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 7 comments… read them below or add one }

avatar jim

Wouldn’t you want to buy it after the USG divested itself of all its shares?

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avatar Luke Landes

Maybe I’m wrong, but I would think the process of divestiture and the demand to buy shares as the government sells them would boost prices, and if so, it would be better to buy before that happens to ride the full wave. What I don’t know, aside from other things, is if the government’s conversion from preferred to common stock will decrease the share price.

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avatar Mike

I do think that there may be an opportunity to purchase AIG equity down the road, but I do not think it’s time yet. The government has about $49 billion worth of AIG preferred shares at the moment. Gradually over time, these shares will be converted to AIG common at a price of $35 per share, which the government will then be able to sell on the market. I believe that such an inflated supply of AIG common will outweigh demand for these shares, which will cause the share price to remain stable or gradually decrease over time.

Consider Citigroup — on April 26, 2010 the government began to wind down its position in the company. From April 26 to today, these shares have lost 19.44%. Although most financial services companies have performed poorly over this particular time period, C has underperformed both the S&P500 and the Financial Services SPDR ETF (Ticker: XLF) by 26.85% and 5.11%, respectively.

Now, those things considered, I did say that there may be a opportunity to purchase AIG shares and make money, but it’s necessary to consider a few things regarding valuation. First, there has been a fundamental shift in the way that the market values companies. Many institutions that were able to quickly return to profitability have already stabilized in the market — GS, MS, CS, etc. These companies have several quarters of stable earnings under their belts. AIG does not have that same record, their earnings have been very volatile. Secondly, AIG is now a significantly different business than it once was. With many divestitures of non-core businesses, talent, and resources, it may be very difficult to forecast what type of earning potential AIG has. This obviously makes it difficult to value AIG’s common stock to tell if you’re really getting a bargain by buying it.

I’d wait a couple quarters. Let the government wind down their position a little and wait for some more clarity in this one before diving in.

I have no position in AIG.

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avatar The Latter-day Saver

I agree with Mike. The increase in the supply of shares will lower the price short-term. I don’t think I would jump in yet.

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avatar eric

I have no idea which direction the share prices will be going, but I’m glad to hear the government getting out of AIG.

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avatar 4hendricks

I know people don’t want to hear this, but I don’t believe AIG should have been bailed out in the first place. No lessons were learned, and the public still lost.

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avatar sw2001a

“I agree with Mike. The increase in the supply of shares will lower the price short-term. I don’t think I would jump in yet.”

The dilution has already occurred-being manipulated lower daily

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