MET MetLife Inc

Yesterday, American International Group Inc. (AIG) announced that the US Treasury sold shares worth about $6.0 billion of the company, which were held by the latter, in an attempt to reduce its stake in the company.

Accordingly, the Treasury had offered to sell 206.9 million shares of AIG at $29 per share, which is above the government’s break-even price of $28.73 per AIG share, thereby generating profit out of the sale. This in turn has reduced the Treasury’s stake in the company to 70% from 77%, while the Treasury will still own about 1.25 billion shares of AIG. The Treasury’s stake was previously reduced from 92% to 77% in May 2011 through AIG’s first secondary stock offering, wherein the former earned about $8.7 billion by selling stock worth $200 million.

Moreover, the terms of the agreement has entailed AIG to repurchase about $3.0 billion of the stock, while the underwriters are granted an option of buying another $900 million of stock. The US government has appointed Morgan Stanley (MS), Credit Suisse AG (CS) and Citigroup Inc. (C) as managers of the stock offering.

Additionally, last week AIG also repaid about $8.5 billion to the government, thereby reducing the $182.3 billion bailout loan taken by the company in September 2008 to $42 billion now, excluding the proceeds of the latest $6.0 billion share offering. The earning of $6.0 billion will further reduce the government loan on AIG to about $36 billion.

Winding out its other loan obligations, AIG also agreed to repay $8.5 billion owed by the government through preferred equity investment special purpose vehicles (SPV) as part of the bailout. This booty will be raised from the net proceeds of the sale of 1.7 billion shares of AIA Group Ltd. (AIA) last week worth $5.6 billion, which was paid yesterday. Moreover, $1.6 billion is projected from the proceeds of the Maiden Lane II portfolio disposition, which is to be paid on March 19, while another $1.6 billion will be squeezed out from the escrowed cash proceeds from the sale of AIG’s American Life Insurance Co. (ALICO) subsidiary to MetLife Inc. (MET) in 2010.

The cash proceeds from the ALICO sale is expected to be released in two parts. While the first tranche of approximately $1.0 billion, subject to certain reserve amounts, will be paid by November 2012, the remaining amount is slated to be paid by May 2013. Besides, AIG has also agreed to liberate its collateral against the interest in the company’s aircraft leasing unit – International Lease Finance Corp. (ILFC).

Going forward, the lucrative sale of Maiden II raises optimism for a profitable sale of other investment vehicle – Maiden Lane III, which contains collateralised debt obligations (CDOs) that were held by AIG’s counterparties, and were bought by the Federal Reserve to terminate credit default swaps (CDS) issued by the company. Meanwhile, AIG also expects to vend its stake in several privately held companies and use the net proceeds to repay the government bailout loan as soon as possible.

While AIG’s stock price had shored up by 26% this year as it reported net operating earnings of $20 billion in the fourth quarter of 2011, the latest announcement of stock price offering appears to have not been taken positively by the market and raises some skepticism on consistency of the earnings and capital outlook. Shares of AIG slid 3.9% on Thursday and closed at $28.31, on the New York Stock Exchange.

Hence, we maintain a long-term Neutral stance on AIG, which carries a Zacks Rank #3, which is equivalent to a short-term Hold rating.

 
AMER INTL GRP (AIG): Free Stock Analysis Report
 
CITIGROUP INC (C): Free Stock Analysis Report
 
CREDIT SUISSE (CS): Free Stock Analysis Report
 
METLIFE INC (MET): Free Stock Analysis Report
 
MORGAN STANLEY (MS): Free Stock Analysis Report
 
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