UPDATE: Treasury: Launching $6 Billion Offering Of AIG Common Stock

The U.S. Treasury said it was launching a sale of up to $6 billion of its holdings in American International Group Inc. (AIG), a delayed second effort to sell off shares the department got from one of the most controversial bailouts of the financial crisis.

AIG, which has bounced back from the brink of collapse and now expects steady profits in coming years, will itself buy up to $3 billion of the shares, the Treasury said in a statement Wednesday.

The Treasury currently owns about 77% of AIG after it sold some of its stake in a "re-IPO" of $8.7 billion of AIG stock for $29 a share last May. If the Treasury again finds buyers for the shares for $29 each and AIG buys half and retires the stock, the Treasury would reduce its common stake to about 70%.

The U.S. had been wanting to sell off more of its holdings in late 2011, but the sale was delayed when the shares fell in the second half of 2011 and traded below $28.73, the price taxpayers effectively paid for the government's stake.

But the stock turned around after AIG in late February said it was freeing up tax credits it had accumulated as its losses mounted amid the financial crisis. AIG said it would be able to use the massive tax benefit because executives now believed the insurer was likely to report sustainable profits in the years ahead.

That sent AIG shares back above $29 for the first time since July, paving the way for the $6 billion sale announced late Wednesday.

AIG said the purchase of up to $3 billion of its shares replaced its current buyback authorization from its board of directors.

In addition, the Treasury said it had also reached an agreement with AIG for the insurer to repay the government's remaining $8.5 billion preferred stake in another bailout-era vehicle that held AIG's minority portion of Asian life insurer AIA Group Ltd. (1299.HK, AAGIY, AAIGF). The majority of the funds AIG will use in the transaction will come from the sale of a portion of its stake in AIA that is scheduled to close Thursday.

"The bottom line is this: the people of AIG have achieved another significant milestone in our progress toward our goal that American taxpayers recoup their entire investment in AIG at a profit," said AIG Chief Executive Robert Benmosche.

The Treasury said the sale is part of its "ongoing efforts to exit its investment in AIG, recovery taxpayer dollars, and wind down" the $700 billion Wall Street rescue fund.

The Treasury said it had engaged Citigroup Global Markets, Credit Suisse Securities and Morgan Stanley & Co. as joint global coordinators for the offering of the AIG stock offering. AIG said the Treasury will also grant an option to the underwriters to purchase an additional $900 million of its stake.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com and Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

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