US Treasury’s cash investment equals $68 billion
NEW YORK – The recapitalization of bailed-out insurer American International Group Inc closed on Friday, leaving the government with a 92 percent stake that it plans to sell quickly.
Bankers were buzzing on Friday about how soon that might happen, with at least one saying he would not be surprised if the government picked the deal’s managers next week and others saying the fee on the deal was already under pressure.
AIG Chief Executive Bob Benmosche, in an interview, said the company was hoping to pick the deal’s managers as soon as was practical, although he gave no timeframe. Benmosche was in Washington for lunch with Treasury Secretary Timothy Geithner.
A person familiar with the situation, who spoke on condition of anonymity, said the government and the company would talk this weekend about how many and which banks to pick as coordinators, with an announcement likely early next week.
The person said if all goes well with the sales process — particularly if AIG can meet a challenge to sell itself and its new structure to investors — then a share offering of at least $15 billion was entirely possible in the near future.
But even before Benmosche and AIG go out on a roadshow to tell their new post-restructuring story, the company’s largest shareholder after the government said he had no doubt about sticking with his investment.
“We are committed to AIG and looking forward to many years of happy returns,” Fairholme Funds Inc’s Bruce Berkowitz said in an interview. “We want to try and help AIG in any way we can, recognizing that it’s a huge opportunity for Fairholme and its investors.”
The recapitalization was intended to simplify AIG’s $182 billion bailout by paying off the Federal Reserve and leaving the U.S. Treasury as AIG’s majority owner. The Treasury said on Friday its cash investment in AIG is now $68 billion.
“Treasury remains optimistic that taxpayers will get back every dollar of their investment in AIG,” Geithner said in a statement. The government stands to make a profit in the tens of billions of dollars on its AIG shares, given their appreciation over the last year.
A person familiar with the situation told Reuters on Monday a large Treasury-AIG share sale was likely after mid-May, and other sources have said in the past that Treasury likely would dispose of the stake by 2012.
The Treasury spent all day Thursday meeting bankers in New York to find the right group to manage the stock sales. The CEOs of some of the world’s largest financial institutions appeared in person to make their case for what could be one of the 10 largest share offers ever.
Sources have said the banks’ proposals would includes fees of no more than 75 basis points — some $150 million for the winning banks on a $20 billion deal, but half the typical fee for a deal of this type and size.
Some bankers said on Friday they would not be surprised, given the competitive nature of the deal, if the fees went even lower — although one banker pointedly noted he had no interest in doing the deal for free.
BUYING A MISSILE
The fee structure would be broadly in line with what the government paid banks last year to manage the initial public offering of automakerGeneral Motors Co. Multiple people familiar with the situation said it did not make sense for the AIG fees to be higher than for GM.
“It’s like buying a missile at $1 billion when the last time you paid half a billion,” one person said.
There is a broad assumption among bankers involved in the process that those who committed to $4.3 billion in bank credit lines for AIG in December have the best chance of winning a lead role in the share sale.
JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc were joint lead arrangers.
Having a lead role gives a bank a larger chunk of the fee pool, more control over the sale process and the prestige of having managed a marquee deal for the U.S. government.
The government saved AIG from collapse in September 2008. Over the last year, the company has raised tens of billions of dollars through asset sales and IPOs of international units as it slimmed down and shifted focus.
“People talk about the fact that AIG sold off its crown jewel, its Asian operations. I believe most of AIG was a crown jewel; the fact is we sold off properties where we got very high values for the earnings we were selling,” Benmosche said.
“We’re still left with a lot of strong profit generators and we have a balance of risk.”
AIG shares fell 5.6 percent to close at $54. The stock price has fallen in recent days and is expected to settle in the mid-$40s level by next week as stock warrants start trading.