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U.S. Treasury will sell $4.5 billion of its AIG stock

By Catholic Online (NEWS CONSORTIUM)
August 7th, 2012
Catholic Online (www.catholic.org)

The U.S. Treasury declared last week that it would sell $4.5 billion in American International Group, or AIG stock as the government continued to wind down its stake in the bailed-out insurance giant. After this sale, there would be about $25.5 billion in taxpayer money still invested in AIG. The company was originally rescued in a complex, multi-step bailout by the Treasury and Federal Reserve in 2008.

LOS ANGELES, CA (Catholic Online) - The government pledged more than $182 billion to AIG, which eventually took about $125 billion in exchange for a 92 percent taxpayer stake in the company. The treasury and the Fed have been unwinding that stake through periodic sales since last year.

This sale would reduce the government's 61 percent stake further, though the amount of the reduction would depend on the price at which the stock is sold.

In reaction, AIG stock was trading at about $31.16 last week, up about 34 percent so far this year.

AIG said it would purchase up to $3 billion of the Treasury's shares, the remainder sold on the open market.

The offering's underwriters, such as Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co., and J.P. Morgan Securities have the option to purchase an additional $675 million in AIG stock from the Treasury over the next 30 days.

According to online encyclopedia Wikipedia, AIG suffered from a liquidity crisis when its credit ratings were downgraded below "AA" levels in September 2008. The United States Federal Reserve Bank on September 16, 2008 created an $85 billion credit facility to enable the company to meet increased collateral obligations consequent to the credit rating downgrade, in exchange for the issuance of a stock warrant to the Federal Reserve Bank for 79.9 percent of the equity of AIG.

The Federal Reserve Bank and the United States Treasury by May 2009 had increased the potential financial support to AIG, with the support of an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182.5 billion. AIG subsequently sold a number of its subsidiaries and other assets to pay down loans received, and continue to seek buyers of its assets.

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