AIG unit stock soars in Hong Kong as insurer works to pay back U.S.
Friday, October 29, 2010; 10:49 PM
A lively day on the Hong Kong stock exchange Friday could translate into good news for American taxpayers.
Shares of Asian-based insurer AIA, the unit recently taken public by bailed-out insurance giant American International Group, soared more than 17 percent on its first day of trading.
"It's certainly a positive sign," said Rob Haines, an analyst for CreditSights. "It's good for the government, good for the taxpayers, good news for AIG."
At the end of last month, officials at AIG and the Treasury Department announced that they had finalized a deal to restore the troubled insurer to independence and to have it repay the massive taxpayer aid that rescued the company more than two years ago.
Taking AIA public is a key part of that plan. That effort, which came after an attempt to sell the valuable division fell through earlier this year, was months in the making.
The sale of another of AIG's crown jewels, American Life Insurance Co., or Alico, is expected to close in coming days. MetLife is paying $15.5 billion for Alico, which operates in more than 50 countries.
Together, the AIA and Alico transactions are expected to wipe out AIG's remaining debt to the Federal Reserve Bank of New York, which bailed out AIG with an emergency $85 billion loan in September 2008, giving the government an 80 percent stake in the company. The bailout eventually grew to a government commitment of more than $180 billion, though the company's actual tab has decreased steadily over the past year.
Even after AIG repays its debt to the Fed, the company still must make good on Treasury's nearly $50 billion investment.
Under the current strategy, Treasury plans to swap its preferred shares in the company for about 1.7 billion shares of AIG common stock, leaving the federal government with a temporary 92.1 percent ownership stake in AIG, up from its current stake of 79.8 percent.
Treasury expects to sell those shares to investors over time, meaning that AIG's stock price ultimately will determine how quickly the government can pull out of the company and how much of the taxpayer investment it can recoup. If the stock falls flat, taxpayers could be on the hook for billions of dollars; if it holds steady or improves, the government stands to reap a profit.
Either way, AIG will emerge as a much smaller company than the behemoth it was before the crisis. It also will be primarily an insurance company once again, rather than depending on the profits of units such as AIG Financial Products, whose troubled derivatives contracts nearly drove its parent company into the ground.
Plenty of hurdles remain before AIG pays back its debt to the government and achieves its independence, said Haines, the CreditSights analyst. But Friday's successful AIA debut certainly helps.
"It's one step. There are a lot more steps. A lot of things could go wrong," he said. "But this is a positive first step."
AIA stock closed Friday at HK$23.05.