AIG (NYSE: AIG) and the Treasury Department have agreed to a plan to convert $49.1 billion in AIG preferred shares into a whopping 1.66 billion shares of AIG common stock, which the Treasury will then sell to the public. The plan also calls for repaying the New York Fed to remove it as a senior secured creditor.
For AIG, this is a win. It's a chance to get out from under the stigma of government ownership and get back to legitimate business. But you have to question what kind of deal taxpayers are being stuck with. It's unclear how easy it will be for Treasury to exit its massive position. It will aim to sell the stock over about two years. The "break-even" price is apparently just below $30 a share. The stock currently hovers in the high $30s. So it eminently possible that the government could turn a profit. But what if profits tank, which is also a possibility in the environment? There are certainly no guarantees.
It amounts to huge concentrated bet by the Treasury on behalf of taxpayers, a principal bet so to speak. "My personal view is that there's no chance of a loss," AIG CEO Robert Benmosche told MarketWatch. He may come to regret that. The government has every right to try to time sales with strong prices. It may take a longer than two years. The Citi (NYSE: C) experience has given us a lot of reason to hope that the AIG sale will go quickly.
For more:
- here's a MarketWatch article
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